<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998
REGISTRATION NO. 333-46493
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ZD INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 2721 13-3987754
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 503-3500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TIMOTHY C. O'BRIEN
ZIFF-DAVIS INC.
ONE PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 503-3500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<CAPTION>
STEPHEN A. GRANT, ESQ. JEFFREY SMALL, ESQ.
<S> <C>
SULLIVAN & CROMWELL DAVIS POLK & WARDWELL
125 BROAD STREET 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10017
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(o) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------
* Upon closing of the Offering, ZD Inc. will be renamed Ziff-Davis Inc. and
Ziff-Davis Inc. will be renamed ZD Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 28, 1998 25,800,000 Shares
Ziff-Davis Inc.
COMMON STOCK
----------
ALL OF THE 25,800,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
THE COMPANY. OF THE 25,800,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY,
20,640,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND
CANADA BY THE U.S. UNDERWRITERS AND 5,160,000 SHARES ARE BEING OFFERED
INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL
BE BETWEEN $14.00 AND $17.00 PER SHARE. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
----------
CONCURRENTLY WITH THE OFFERING BEING MADE HEREBY, THE COMPANY IS OFFERING, BY
MEANS OF A SEPARATE PROSPECTUS, $250 MILLION AGGREGATE PRINCIPAL AMOUNT OF
ITS % SENIOR SUBORDINATED NOTES DUE 2008 (THE "NOTES OFFERING" AND,
TOGETHER WITH THE OFFERING, THE "OFFERINGS"). THE CONSUMMATION OF
EACH OF THE OFFERINGS IS CONDITIONED UPON, AND WILL OCCUR
SIMULTANEOUSLY WITH, THE CONSUMMATION OF THE OTHER. SEE "USE OF
PROCEEDS."
----------
UPON COMPLETION OF THE OFFERINGS, AFFILIATES OF THE COMPANY WILL RETAIN
APPROXIMATELY 74.2% OF THE OUTSTANDING VOTING POWER OF THE COMPANY. SEE
"PRINCIPAL STOCKHOLDERS."
----------
ALL THE NET PROCEEDS WILL BE PAID TO AFFILIATES OF THE COMPANY. SEE "USE OF
PROCEEDS."
----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "ZD," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
3,870,000 additional Shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
----------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about , 1998 at
the office of Morgan Stanley & Co. Incorporated, New York, NY against payment
therefor in immediately available funds.
----------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
, 1998
<PAGE>
[ART]
Artwork includes: (i) general comments relating to the Company and the
industry; (ii) descriptions of each of the Company's platforms; and (iii)
logos of the Company and each of the Company's 50 brands.
Text included within the artwork is as follows:
COVER PAGE:
The impact of computing and the Internet is a phenomenon that will define
this era.
The number of personal computers in use worldwide is now over 300 million
and use of the Internet has reached over 68 million U.S. adults.
Ziff-Davis is dedicated to bringing together the makers and users of
technology in a productive exchange.
We believe in technology.
SPREAD:
For companies targeting the technology marketplace, Ziff-Davis provides
integrated marketing programs across all of its platforms.
ZD PUBLISHING
Ziff-Davis' U.S. and international publications, including joint ventures
and over 50 licensed publications, total more than 80 publications worldwide.
PC Magazine, PC Week and Computer Shopper magazines are the top three computer
magazines in the U.S., as measured by total revenue.
ZD COMDEX & FORUMS
Ziff-Davis produces over 50 trade shows and conferences around the world.
COMDEX/Fall is the largest trade show in the U.S. as measured by total
revenue, total exhibit space and number of attendees.
ZD INTERNET
ZDNet.com, Ziff-Davis' computing Web site, was ranked as the leading Web
site in 1997 in the category of news, information and entertainment, as
measured by visitors per month. ZDNet has over one million registered users
and over 2.5 million e-mail recipients per month.
ZD EDUCATION
Ziff-Davis publishes computer training products and over 50 newsletters and
provides training through ZDUniversity, its Web based educational program.
ZD MARKET RESEARCH
Ziff-Davis develops, analyzes and compiles information on computer
technology issues and assists clients in identifying and targeting their
customers by tracking current activity and market share in the business, home
and reseller channels.
ZD TELEVISION
ZDTV, a 24 hour cable television channel and integrated Web site to be
launched by an affiliate, will target viewers interested in computers,
technology and the Internet.
BACK PAGE:
Ziff-Davis reaches makers and users of technology in over 100 countries.
believe in technology
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
---------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE TAKEN
IN ANY JURISDICTION BY THE COMPANY OR BY AN UNDERWRITER THAT WOULD PERMIT A
PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED,
OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS
COMES ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES
ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE COMMON STOCK
AND THE DISTRIBUTION OF THIS PROSPECTUS.
---------------
The Company's logo and certain of the titles and logos of the Company's
publications, products and services referenced herein are trademarks of the
Company. Each trade name, trademark or service mark of any other company
appearing in this Prospectus is the property of its holder.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 12
The Company............................................................... 18
The Reorganization........................................................ 20
Use of Proceeds........................................................... 21
Capitalization............................................................ 22
Dividend Policy........................................................... 22
Dilution.................................................................. 23
Selected Historical Combined Financial and Other Data..................... 24
Unaudited Pro Forma Combined Financial Information........................ 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 30
Industry.................................................................. 40
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.................................................................. 42
Management................................................................ 58
Certain Transactions...................................................... 66
Principal Stockholders.................................................... 69
Description of Capital Stock.............................................. 70
Shares Eligible for Future Sale........................................... 74
Description of Certain Indebtedness....................................... 76
Certain United States Tax Consequences to Non-U.S. Holders of Common
Stock.................................................................... 78
Underwriters.............................................................. 80
Legal Matters............................................................. 83
Experts................................................................... 84
Additional Information.................................................... 84
Index to Financial Statements............................................. F-1
</TABLE>
3
<PAGE>
This Prospectus includes statistical data regarding the publishing, trade
show and Internet sectors which was obtained from industry publications,
including reports generated by ActivMedia, Advertising Age, AdScope, Audit
Bureau of Circulations, BPA International, Computer Intelligence, CMR,
Cowles/Simba Information, Electronic Advertising and Marketplace Report,
FIND/SVP, Inc., IMS, International Communications Research, Jupiter Ad Spend,
MediaMetrix, Trade Show Week and U.S. Industry and Trade Outlook 1998. These
industry publications generally indicate that the information contained
therein has been obtained from sources believed to be reliable, but that the
accuracy and completeness of such information is not guaranteed. The Company
has not independently verified such data. The Company has not sought the
consent of any of these organizations to refer to their reports herein.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by reference to, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus (i)
assumes no exercise of the over-allotment option and (ii) gives effect to the
transactions described herein under the heading "The Reorganization." Unless
the context otherwise requires, references in this Prospectus to "Ziff-Davis"
or the "Company" are to the Company and its consolidated subsidiaries after
giving effect to the transactions described herein under the heading "The
Reorganization" and their respective predecessors. Unless the context otherwise
requires, references in this Prospectus to "Softbank" refer to SOFTBANK Corp.,
a Japanese corporation, and its affiliates. See "The Company--Relationship with
Softbank" and "The Reorganization."
Upon closing of the Offering, the Company will assume the name Ziff-Davis
Inc. and the operating subsidiary with the same name will be renamed ZD Inc.
Unless the context otherwise requires, references in this Prospectus to "ZDI"
refer to the operating corporation and its subsidiaries, including (i) Ziff-
Davis Publishing Company prior to its acquisition by Softbank in February 1996
and (ii) operations owned by MAC Inc. but managed by ZDI and to be acquired by
the Company in the Reorganization. Such operations owned by MAC Inc. consist of
certain international consumer and Internet publications, international trade
shows and the ZDNet business (the "MAC Assets"). See "The Reorganization" and
"Business."
THE COMPANY
The Company believes it is the world's preeminent integrated media and
marketing company focused on computing and Internet-related technology, with
principal platforms in print publishing, trade shows and conferences, online
content, market research and education. The Company provides global technology
companies with marketing strategies for reaching key decision-makers.
The Company's PC Magazine, PC Week and Computer Shopper magazines are the top
three computer magazines in the U.S. and are among the top 25 U.S. magazines,
each as measured by total revenue in 1996 (the latest year for which data is
available). The Company also produces the world's most important trade shows
serving vendors, resellers, buyers and users of computer technology, including
COMDEX/Fall, the largest trade show in the U.S. The Company's ZDNet.com Web
site ("ZDNet") is the leading computing content site and ranked the number one
Web site in 1997 in the category of news, information and entertainment, as
measured by visitors per month.
The Company's 28 primary U.S. and international titles, including its joint
ventures, and over 50 licensed publications, total more than 80 publications
distributed worldwide, with a combined circulation of over eight million
primary readers. In 1997, Ziff-Davis was the largest technology publisher in
the U.S. in terms of total magazine revenue. In that same year, Ziff-Davis
accounted for 36.8% of all advertising and circulation dollars spent in
computer periodicals, with at least 50% more total magazine revenue than its
closest competitor. The preeminence of the Company's publications among readers
and advertisers is based on its comprehensive market and product coverage, the
quality of its editorial content and the influence of its readership.
In 1997, the Company produced over 50 trade shows and conferences worldwide
with over two million estimated attendees. The Company's COMDEX/Fall event is
the number one ranked trade show for all industries in the U.S. as measured by
total revenue, total exhibit space and number of attendees.
The Company's other media and marketing platforms include online content,
market research, education and the publication of computer-related newsletters
and training manuals and materials. In addition, the Company has an option to
acquire an interest in ZDTV: Your Computer Channel ("ZDTV"), the first 24-hour
cable television channel and integrated Web site focused exclusively on
computers, technology and the Internet, which is expected to be launched in the
first half of 1998.
5
<PAGE>
The Company had total revenue of $1.154 billion for 1997. The Company's
revenue is primarily derived from advertising sales, which represented 51.9% of
total revenue in 1997. The second largest component of the Company's revenue is
derived from trade shows and conferences, which accounted for 23.5% of total
revenue in 1997. Circulation revenue, comprised of subscription and newsstand
single copy sales, generated 13.1% of the Company's revenue in 1997 and other
revenue components, including online content, market research and revenue
derived from joint ventures and licenses, contributed 11.5% in 1997. The
Company had a net loss of $71.2 million for 1997 and will report a loss from
operations of $24 million for the first quarter of 1998 as compared with a loss
from operations of $15.6 million for the first quarter of 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BUSINESS AND OPERATING STRATEGY
The Company's objective is to be the preferred marketing partner to
technology vendors and service providers seeking to reach primary decision-
makers involved in the specification and purchase of their products and
services. Major elements of the Company's strategy include:
.Maintain Focus on the Computer and Internet Technology Markets
.Develop the Most Comprehensive, Objective and Authoritative Content
.Build Upon Brand Strength of Existing Media Properties
.Continue to Leverage Multiple Media Marketing Platforms
.Expand Leadership on the Internet
.Launch New Products and Services
.Expand Global Reach
Although none of the proceeds of the Offerings will be paid to the Company,
the Company expects to fund its business and operating strategy from internally
generated cash flow from operations, which are estimated to be sufficient to
fund investments and the repayment of indebtedness. As a result of certain
large non-cash charges, the Company's earnings for the year ended December 31,
1997 were insufficient to cover fixed charges by $74.5 million and, on a pro
forma basis, by $6.8 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
6
<PAGE>
RELATIONSHIP WITH SOFTBANK
Upon the completion of the Reorganization described below, SOFTBANK Corp., a
Japanese corporation publicly-traded on the Tokyo Stock Exchange First Section
(together with its affiliates, "Softbank"), will own approximately 74.2% of the
outstanding shares of Common Stock (71.4% if the U.S. Underwriters' over-
allotment is exercised in full). The Company and Softbank have entered into
certain agreements governing various interim and ongoing relationships between
Softbank and the Company. Softbank also has given the Company an undertaking
not to expand certain operations outside Japan in competition with the Company
without the prior approval of the Company's management directors after
consulting with the Company's independent directors. This undertaking would not
preclude investments by investment funds managed by Softbank. The Company has
undertaken not to compete with Softbank in Japan without the prior approval of
SOFTBANK Corp.'s Board of Directors and has agreed to afford Softbank the
continuing right to license all of the Company's products and services in
Japan. See "Risk Factors--Control by Principal Stockholders and Potential
Conflicts of Interest," "The Company--Relationship with Softbank" and "Certain
Transactions."
The following table presents Softbank's total historical investment in and
return on investment from the Company as well as the value of its investment at
the assumed initial offering price (calculated based on the midpoint of the
range set forth on the cover page). See also "Dilution."
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS,
EXCEPT PER
SHARE
DATA)
----------
<S> <C>
Historical investment in the Company....................... $3,040,201(1)
Total return on investment................................. 471,966(2)
Pro forma total return on investment....................... 2,003,278(3)
Percentage of Company held after the Offerings............. 74.2%
Value of investment after the Offerings.................... 1,150,100(4)
</TABLE>
- --------
(1) Total investment includes $492,560 in equity and $2,547,641 in debt.
(2) Total return includes $8,000 in dividends, $355,096 in interest and
$108,870 in debt principal repayments.
(3) Pro forma total return includes total return as described above in (2) plus
the repayment of intercompany indebtedness totaling $1,531,312 in
connection with the Reorganization.
(4) Assumes an initial public offering price of $15.50 per share and a holding
of 74.2 million shares of Common Stock by Softbank.
7
<PAGE>
THE REORGANIZATION
The Company is an indirect subsidiary of SOFTBANK Corp., which, as of
December 31, 1997, was 50.2% owned by Mr. Masayoshi Son, its President,
including 43.4% directly held by his 99% owned holding company, MAC Inc., a
Japanese corporation ("MAC"), and SOFTBANK Corp.'s largest shareholder. Prior
to the Offerings, the Company's businesses were conducted through various
indirect subsidiaries of SOFTBANK Corp. The Company's publishing business was
principally conducted through Ziff-Davis Inc. ("ZDI") and its trade show
business was principally conducted through ZD COMDEX and Forums Inc. ("ZDCF").
The MAC Assets were managed by ZDI and ZDCF, but were owned by MAC.
Concurrently with the Offerings, the Company will consummate a Reorganization
(as described under "The Reorganization") pursuant to which: (i) all of the
stock of ZDI and ZDCF will be contributed to the Company by Softbank in
exchange for 74.2% of the Company's Common Stock; (ii) the Company will
complete the purchase of the MAC Assets; (iii) the Company will issue and sell
the Common Stock and the Notes pursuant to the Offerings; (iv) the Company will
enter into a credit facility with a group of financial institutions (the
"Credit Facility") and borrow $1.25 billion thereunder; and (v) approximately
$928 million of the Company's obligations to Softbank will be converted to
equity and the Company will repay approximately $1.531 billion of obligations
to Softbank. The Company has obtained a commitment letter from The Bank of New
York, Morgan Stanley Senior Funding, DLJ Capital Funding and The Chase
Manhattan Bank to provide such Credit Facility. All of the transactions
comprising the Reorganization will be deemed to occur simultaneously. See "Risk
Factors--Risks Relating to the Reorganization," and "--Absence of History as a
Stand-Alone Company; Limited Relevance of Historical Financial Information,"
"The Reorganization" and "Unaudited Pro Forma Combined Financial Information."
8
<PAGE>
THE OFFERING
Common Stock offered:
<TABLE>
<S> <C>
U.S. Offering...............20,640,000.shares
International Offering.......5,160,000 shares
-----------------
Total.................... 25,800,000 shares
=================
</TABLE>
Common Stock to be
outstanding after the 100,000,000 shares(1)
Offering...................
Notes Offering..............
Concurrently with the Offering being made hereby,
the Company is offering, by means of a separate
prospectus, $250 million aggregate principal
amount of its % Senior Subordinated Notes due
2008 (the "Notes"). The consummation of the
Offering being made hereby and the Notes Offering
is conditioned upon, and will occur
simultaneously with, the consummation of the
other.
Use of Proceeds............. The net proceeds from the Offerings, together
with the amounts drawn under the Credit Facility,
will be used to complete the purchase of the MAC
Assets and repay intercompany indebtedness. See
"Use of Proceeds."
NYSE symbol................. "ZD"
- ----------------
(1) Does not include 10,000,000 shares of Common Stock reserved for issuance
under the Company's Incentive Compensation, Employee Stock Purchase and
Non-Employee Directors Stock Option Plans. See "Management--Compensation of
Directors" and "--Stock Plans."
RISK FACTORS
Prospective investors should consider carefully the information contained
under "Risk Factors," as well as the other information and data included in
this Prospectus for certain considerations relevant to evaluating an investment
in the shares of Common Stock offered hereby.
9
<PAGE>
SUMMARY HISTORICAL COMBINED FINANCIAL AND OTHER DATA
The following table presents Summary Historical Combined Financial and Other
Data for ZDI and ZDCF as of December 31, 1997 and for the three years then
ended which were derived from the audited combined financial statements of ZDI
and ZDCF included elsewhere in this Prospectus. COMDEX was acquired by Softbank
on April 1, 1995 and ZDI was acquired by Softbank on February 29, 1996; the
Summary Historical Combined Financial and Other Data includes the results of
COMDEX and ZDI from such dates. See "The Reorganization." The following table
also presents pro forma combined financial data of ZDI and ZDCF giving effect
to the transactions described under the heading "The Reorganization" as if they
had occurred as of January 1, 1997, in the case of the statement of operations
data, and as of December 31, 1997, in the case of the balance sheet data. The
pro forma financial data does not purport to be indicative of the results that
actually would have been obtained had the Reorganization been completed as of
such dates and is not intended to be a projection of the future results of
operations or financial position of ZDI and ZDCF. The following information
should be read in conjunction with "Use of Proceeds," "Capitalization,"
"Selected Historical Combined Financial and Other Data," "Unaudited Pro Forma
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Presentation of Financial
Information," and the Combined Financial Statements of ZDI and ZDCF, including
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
PRO FORMA
1995 1996 1997 1997(1)
-------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue, net.................... $202,729 $ 955,139 $1,153,761 $ 1,153,761
Depreciation and amortization... 24,305 139,736 154,940 156,940
Income from operations.......... 62,675 87,181 109,232 109,232
Interest expense, net........... 44,005 120,646 190,445 122,730
Income/(loss) before income
taxes.......................... 22,869 (27,124) (72,491) (4,776)
Net income/(loss)(2)............ 10,945 (52,081) (71,179) (7,915)
Pro forma basic loss per
share(2)....................... (.08)
Pro forma diluted loss per
share(2)....................... (.08)
Pro forma weighted average
shares outstanding(2).......... 100,000,000
OTHER DATA:
EBITDA(3)....................... $ 91,179 $ 233,258 $ 272,894 $ 274,894
Capital expenditures............ 3,367 22,365 30,196 --
Net cash provided (used) by
operating activities........... 26,168 61,543 (3,364) --
Net cash used by investing
activities..................... (817,887) (2,147,188) (44,196) --
Net cash provided by financing
activities..................... 815,408 2,087,652 47,946 --
Ratio of earnings to fixed
charges(4)..................... 1.5x -- -- --
<CAPTION>
AS OF DECEMBER 31,
1997
-----------------------
ACTUAL PRO FORMA
---------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 30,301 $ 30,301
Total assets........................................ 3,546,646 3,532,834
Total long-term obligations......................... 2,408,240 1,586,539
Stockholders' equity................................ 126,130 1,441,165
</TABLE>
10
<PAGE>
- --------
(1) Due to the subjectivity inherent in the assumptions concerning the timing
and nature of the uses of cash generated by the pro forma adjustments, cash
flows from operating, investing and financing activities are not presented
in the pro forma data.
(2) No historical earnings per share or share data are presented as the Company
does not consider such data meaningful. Upon closing of the Offering, 100
million shares of common stock will be outstanding and pro forma earnings
per share data gives effect to these shares as if they were outstanding on
January 1, 1997.
(3) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and amortization. EBITDA is not intended to represent
cash flows from operations and should not be considered as an alternative
to net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. The Company believes that EBITDA is a
standard measure commonly reported and widely used by analysts, investors
and other interested parties in the publishing and media industries.
(4) For purposes of the computations, earnings before fixed charges consist of
income/(loss) before income taxes adjusted for equity earnings (loss), as
appropriate, plus fixed charges. Fixed charges are defined as interest
expense plus that portion of rental expense which is deemed to be
representative of the interest factor. For the years ended December 31,
1996, 1997 and Pro Forma 1997 earnings were insufficient to cover fixed
charges by $26,598, $74,520 and $6,805, respectively.
----------------
For information relating to the three months ended March 31, 1998, see page
33 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SEE THE TABLE ON PAGE 32 IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" FOR A PRESENTATION OF THE
COMBINED RESULTS AS IF ZDI HAD BEEN ACQUIRED ON JANUARY 1, 1995. THE COMPANY
BELIEVES THIS INFORMATION IS IMPORTANT IN EVALUATING ITS HISTORICAL RESULTS OF
OPERATIONS.
11
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves various
risks. Prior to investing in the Common Stock being offered hereby,
prospective investors should consider carefully the factors set forth below,
together with the other information set forth in this Prospectus. Certain
information contained in this section and elsewhere in this Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors set forth in
this section and elsewhere in this Prospectus.
RISKS RELATING TO THE REORGANIZATION
The Company is a newly organized Delaware corporation, incorporated on
February 4, 1998 in contemplation of the Reorganization. As part of the
Reorganization, the Company has acquired and will acquire the MAC Assets for
approximately $370 million. Although the Company believes that the purchase
price does not exceed fair market value, such arrangements are not the result
of an arm's length negotiation between unrelated parties, and there can be no
assurance that the Company would not have been able to obtain better terms
from unrelated parties. See "The Reorganization," "Unaudited Pro Forma
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions."
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION
The Company has never operated as a stand-alone company. Until October 1997,
the ZDI and the ZDCF businesses were managed as separate Softbank
subsidiaries. The Company's future operating results will depend in part on
its ability to integrate these businesses and manage the combined enterprise.
In addition, although the Company will be a subsidiary of Softbank following
the Offerings, Softbank will be under no obligation to provide assistance to
the Company or any of its subsidiaries.
The financial information of ZDI and ZDCF included herein does not reflect
what the actual results of operations, financial position and cash flows of
the Company would have been had the Company existed and the Reorganization
been completed prior to the periods presented, nor is it necessarily
indicative of the results of operations, financial position and cash flows of
the Company in the future. The financial statements also include the MAC
Assets which are being transferred to the Company pursuant to the
Reorganization. See "Unaudited Pro Forma Combined Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Presentation of Financial Information" and "Certain Transactions."
CONTROL BY PRINCIPAL STOCKHOLDERS AND POTENTIAL CONFLICTS OF INTEREST
Upon the completion of the Reorganization, Softbank will own approximately
74.2% of the outstanding shares of Common Stock of the Company (71.4% if the
U.S. Underwriters' over-allotment option is exercised in full). As a result,
Softbank will be in a position to direct the election of all members of the
Board of Directors of the Company and to control even those actions that
require the approval of two-thirds or more of the voting share capital of the
Company, including amendments to the Company's Certificate of Incorporation
and any business combinations. Such concentration of ownership would also have
the effect of preventing a change in control of the Company that might
otherwise be beneficial to stockholders. Section 141 of the Delaware General
Corporation Law, however, imposes upon directors a fiduciary duty to
shareholders.
The Company and Softbank have entered into certain agreements governing
various interim and ongoing relationships between Softbank and the Company,
including certain licensing and management agreements relating to
publications, trade shows, ZDTV and ZDNet. In addition, Softbank has given the
Company an undertaking that, as long as it owns 40% of the voting stock of the
Company and can elect a majority of the Board of Directors, it will not expand
operations involving (x) publishing information on computing and Internet-
related technology through the media of print, CD-ROM/DVD, Internet and
television, or (y) producing trade shows, conferences, exhibitions and similar
events primarily related to computing and Internet-related technology outside
Japan in competition with the Company without the prior approval of the
Company's management
12
<PAGE>
directors after consulting with the Company's independent directors. This
undertaking does not preclude investments by investment funds managed by
Softbank. Softbank manages certain venture capital funds which invest in,
among other things, computer and Internet-related companies. These funds may
be able to co-invest with the Company or compete with the Company with respect
to new investments. Softbank may develop new funds in the future, which funds
may compete with the Company for investment opportunities. The Company has
undertaken not to compete with Softbank in Japan without the prior approval of
SOFTBANK Corp.'s Board of Directors and has agreed to afford Softbank the
continuing right to license all of the Company's products and services in
Japan. Such arrangements and undertaking are not the result of an arm's length
negotiation between unrelated parties. See "--New Product Risks," "The
Company--Relationship with Softbank," "Certain Transactions," "Principal
Stockholders" and "Description of Capital Stock."
SIGNIFICANT DEBT OBLIGATIONS
At December 31, 1997, on a pro forma basis after giving effect to the
Reorganization described under "Unaudited Pro Forma Combined Financial
Information," the Company's total debt was approximately $1.594 billion, its
total stockholders' equity was approximately $1.441 billion, its earnings were
insufficient to cover fixed charges by $6.8 million and its total debt was
52.5% of total capitalization. The Company's indebtedness is substantial in
relation to its stockholders' equity. The degree to which the Company is
leveraged could have important consequences to holders of Common Stock
because: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; (ii) the funds available to the Company
for its operations may be reduced if a substantial portion of the Company's
cash flow from operations is dedicated to the payment of principal and
interest on its indebtedness; and (iii) the Company's ability to incur
additional debt may be impaired because the Credit Facility and the Notes
contain financial and other restrictive covenants, including those relating to
the incurrence of additional indebtedness, the creation of liens, the payment
of dividends and sales of assets. See "Description of Certain Indebtedness."
The indebtedness of the Company requires a substantial portion of the
Company's cash flow to be dedicated to the payment of principal and interest
on indebtedness, thereby reducing funds available for capital expenditures and
future business opportunities. In addition, the Company's indebtedness could
increase the Company's vulnerability to adverse general economic conditions
(including increases in interest rates) and could impair the Company's ability
to take advantage of significant business opportunities that may arise.
DEPENDENCE ON DEMAND FOR ADVERTISING
A significant portion of the Company's total revenue in 1997 (51.9%) was
derived from advertising sales. Should a general economic downturn or a
recession in the United States occur in the future, the Company's advertisers
may reduce their advertising budgets. In addition, technology product
advertisers may be affected by factors such as pricing pressures and new
product launches. Furthermore, there can be no assurance that technology
product advertisers will maintain current levels of advertising in special
interest magazines and events as opposed to general interest media such as
newspapers, television and Internet sites. Any material decline in the demand
for advertising by technology product advertisers could have an adverse effect
on the Company's financial condition and results of operations.
IMPORTANCE OF CERTAIN PUBLICATIONS AND TRADE SHOWS
Certain of the Company's publications have represented a significant portion
of the Company's historic revenue, and the Company expects that such
publications will continue to do so in the future. The Company's business
publications, which include such titles as PC Magazine, Computer Shopper and
PC Week, accounted for 65.3% of the Company's publishing revenue in 1997.
Although the Company believes it has a diversified portfolio of special-
interest publications and is not dependent on any single publication, a
significant decline in the performance of any of these publications could have
an adverse effect on the Company's financial condition and results of
operations. See "Business--Print Publishing--Sources of Print Publishing
Revenue."
Certain of the Company's trade shows and conferences have represented a
significant portion of the Company's historic revenue, and the Company expects
that such trade shows and conferences will continue to
13
<PAGE>
do so in the future. COMDEX/Fall accounted for 34.0% of the Company's trade
show and conference revenue in 1997. Although the Company believes it has a
diversified portfolio of trade shows worldwide, a significant decline in the
performance of COMDEX/Fall could have an adverse effect on the Company's
financial condition and results of operations. See "Business--Trade Shows and
Conferences--Sources of Trade Show and Conference Revenue."
SEASONALITY OF REVENUE; FLUCTUATIONS IN REVENUE FROM PERIOD TO PERIOD;
ANTICIPATED LOSS FOR FIRST QUARTER OF 1998
The Company's business is seasonal, with revenue typically reaching its
highest level during the fourth quarter of each calendar year, largely due to
the timing of its single largest trade show event, COMDEX/Fall, and the
increase in publishing revenue in the fourth quarter due to increased consumer
buying activity during the holiday season. In 1997, 35.0% of the Company's
revenue was generated during the fourth quarter, with the first, second and
third quarters accounting for 19.5%, 26.1% and 19.4% of revenue, respectively.
In addition, the Company may experience fluctuations in revenue from period to
period based on levels of marketing expenditure by the Company's advertising
customers and by competition among computer technology marketers. Many of the
Company's large customers concentrate their advertising expenditures around
major new product launches. Marketing expenditure by technology companies can
also be affected by factors affecting the computer industry generally,
including changes in end user demand, pricing pressures and inventory
surpluses. Furthermore, the Company's results are affected by the number and
timing of new product launches and the timing of events. The launch of new
publications, trade shows and services are funded with cash flow from
operations and are expensed as incurred. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and "--
Seasonality."
For the first quarter of 1998, the Company will report a loss from
operations of $24 million as compared with a loss from operations of $15.6
million for the first quarter of 1997. There are several factors influencing
the lower operating results for the first quarter of 1998, including lower
advertising revenue in the Company's business publications as a result of
factors affecting the computer technology industry generally (substantially
offset by revenue from trade shows which were not held in the comparable
period of the prior year) and certain one-time costs occurring in the first
quarter of 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Three Months Ended March 31, 1998
Compared With Three Months Ended March 31, 1997 (unaudited)."
HISTORICAL NET LOSSES
The Company had net losses of $52.1 million and $71.2 million for the twelve
months ended December 31, 1996 and 1997, respectively. On a pro forma as
adjusted basis giving effect to the Reorganization, the Company had a net loss
of $7.9 million, or $(.08) per share, for the twelve months ended December 31,
1997. See "Unaudited Pro Forma Combined Financial Information." There can be
no assurance that the Company will report net income in the future.
NEW PRODUCT RISKS
The Company's future success will depend in part on its ability to monitor
rapidly changing technologies and market trends and offer new publications,
trade shows and services that address the needs of specific target audiences.
The process of internally researching and developing, launching, acquiring
acceptance and establishing profitability for a new publication, trade show or
service, or assimilating and marketing an acquired publication, trade show or
service, can be risky and costly. There can be no assurance that the Company's
efforts to introduce new or assimilate acquired publications, trade shows or
services will be successful or profitable. In addition to its publications,
trade shows and services, the Company is a leading provider of Internet
content about computing services, primarily through its ZDNet online service.
The Internet is still in the relatively early stages of development;
therefore, there can be no assurance that the Company's Internet services will
remain competitive. Costs related to the development of new products are
expensed as incurred and, accordingly, the Company's profitability from year
to year may be adversely affected by the number and timing of new product
launches. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company has entered into a license and services agreement with MAC to
develop ZDTV. ZDTV is indirectly owned by MAC, but as part of this license and
services agreement MAC has granted the Company an
14
<PAGE>
option exercisable through December 31, 1998 to purchase all of MAC's interest
in ZDTV for an amount equal to MAC's investment plus 10% per annum for the
period of its investment. The Company does not intend to exercise the option
unless ZDTV has secured sufficient cable carriage. This may include entering
into a joint venture or other co-ownership arrangement. The Company is
currently funding ZDTV's operations on behalf of MAC through unsecured
advances which, for approved levels of expenditure, are to be reimbursed by
MAC. ZDTV's cash requirements are expected to be approximately $54 million in
1998. There can be no assurance that MAC will continue to approve and
reimburse the Company for expenditures or that the Company will exercise its
option. If the Company exercises its option, there can be no assurance that
ZDTV will ultimately obtain sufficient cable carriage and commercial
acceptance to be profitable. See "The Company--Relationship with Softbank" and
"Certain Transactions."
RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER AND POSTAGE COSTS
The Company's principal raw material is paper. Paper costs constitute a
significant expense, accounting for 15.2% of the Company's total U.S. print
publishing operating expenses in 1997. Paper prices have been volatile over
the past several years, initially rising in 1994, rising more significantly in
1995 and 1996 and declining in 1997. Management anticipates paper prices will
increase in 1998. The Company does not use forward contracts and most of its
paper supply contracts, which are generally for a two to three year renewable
term, provide for price adjustments to reflect changing market prices.
Accordingly, significant increases in paper prices could adversely affect the
Company's future results of operations.
Postage for magazine distribution is also a significant expense for the
Company, accounting for 11.3% of the Company's total U.S. print publishing
operating expenses in 1997. Postage costs increase periodically and can be
expected to increase in the future. The United States Postal Service has
recently announced a 5.4% increase for commercial magazine rates, which is
expected to become effective in 1998. The Company may not be able to recover,
in whole or in part, paper or postage cost increases. Accordingly, significant
cost increases could have an adverse effect on the Company's financial
condition or results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Print
Publishing--Paper and Printing."
COMPETITION
The Company faces significant competition with respect to its print
publications, trade shows and conferences and other technology information
services. In its publishing business, the Company principally competes for
advertising and circulation revenue with publishers of other computer
technology publications and also faces broad competition from media companies
that produce general interest magazines, newspapers and online content.
Overall competitive factors include product positioning, editorial quality,
circulation, price and customer service. Competition for advertising dollars
is primarily based on advertising rates, the nature and scope of readership,
reader response to advertisers' products and services and the effectiveness of
sales teams. In its trade show and conference business, the Company competes
with other producers of trade shows and conferences for exhibition space,
exhibitors and attendees, primarily on the basis of the quality of the
conference, its content and organizational efficiency. If the Company is
unable to compete effectively for advertisers, readers, exhibitors and/or
attendees, its financial condition and results of operations could be
adversely affected. See "Business--Competition."
CONSOLIDATION OF PRINCIPAL VENDORS; SIGNIFICANT SUPPLIER
The Company's principal vendors include paper suppliers, printers,
fulfillment houses and national newsstand distributors. Each of these
industries is currently experiencing consolidation among their principal
participants. Such consolidation may result in: (i) decreased competition,
which may lead to increased prices; (ii) interruptions and delays in services
provided by such vendors; and (iii) greater dependence on certain vendors.
Such factors could adversely affect the Company's results of operations. One
printing company
15
<PAGE>
accounted for approximately 50% of the Company's total print publishing
manufacturing expenditures in 1997 for its U.S.-based publications. While the
Company believes there are adequate alternatives available, an interruption or
delay in service from, or the loss of, this printer could have an adverse
effect on the Company. See "Business--Print Publishing--Paper and Printing."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
One component of the Company's growth strategy is to further expand into
international markets. There are certain risks inherent in doing business in
international markets, such as the uncertainty of product acceptance by
different cultures, the risks of divergent business expectations or
difficulties in establishing joint ventures with foreign partners,
difficulties in staffing and managing multinational operations, currency
fluctuations, state-imposed restrictions on the repatriation of funds and
potentially adverse tax consequences. There can be no assurance that one or
more of such factors will not have an adverse effect on the Company's future
international operations and, consequently, on the Company's financial
condition and results of operations. See "Business --Print Publishing--
International Publications" and "--Trade Shows and Conferences."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company expects to have 100 million
shares of Common Stock outstanding (approximately 103.9 million shares if the
U.S. Underwriters' over-allotment option is exercised in full), of which the
25.8 million shares offered hereby and that portion of 100,000 shares which
SOFTBANK Kingston Inc. intends to sell concurrently with the Offering pursuant
to the Registration Statement of which this Prospectus forms a part will be
freely tradeable without restriction by persons other than "affiliates" of the
Company. The remaining shares of Common Stock will be deemed "restricted"
securities within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and as such may not be sold in the absence of registration
under the Securities Act or an exemption therefrom, including the exemption
contained in Rule 144 under the Securities Act. The Company and Softbank have
entered into a registration rights agreement in connection with the Offering
which provides Softbank with the right to require the Company to register any
or all of the Common Stock held by Softbank in a public offering pursuant to
the Securities Act and the right to "piggyback" or include Softbank's Common
Stock in any registration of Common Stock made by the Company. No prediction
can be made as to the effect, if any, that future sales of shares of Common
Stock, or the availability of such shares for future sales, will have on the
market price of the shares of Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock, and such a reduction in the market price of the Common Stock could
impair the ability of the Company to raise additional capital through future
public offerings of its equity securities. See "Shares Eligible for Future
Sale."
DIVIDEND POLICY; HOLDING COMPANY STRUCTURE
The Company currently intends to retain earnings to finance its operations,
fund future growth and reduce indebtedness and does not anticipate paying
dividends in the foreseeable future. In addition, as a holding company, the
Company's major assets will initially be the shares it holds in its
subsidiaries. Therefore, the Company's ability to pay future dividends and
distributions, if any, to holders of the Common Stock is dependent upon the
receipt of dividends or other payments from its subsidiaries. See "Dividend
Policy."
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price of the Common Stock will be higher than
the book value per share of Common Stock. Accordingly, purchasers in the
Offering will suffer a substantial and immediate dilution of $31.39 in the net
tangible book value per share of Common Stock from the initial public offering
price. See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for
the Company's Common Stock will develop or be sustained after
16
<PAGE>
the Offering. The initial public offering price will be determined by
negotiation between the Company and the representatives of the Underwriters
based upon several factors. See "Underwriters" for a discussion of the factors
to be considered in determining the initial public offering price. The trading
price of the Company's Common Stock could be subject to wide fluctuations in
response to quarterly variations in operating results, expectations of
securities analysts, announcements of new publications or technological
innovations by the Company or its competitors, changes in financial estimates
by securities analysts, the operating and stock price performance of other
companies that investors may deem comparable to the Company and other events
or factors. In addition, the stock market in general has experienced extreme
volatility that often has been unrelated to the operating performance of
particular companies which are traded on the market. These broad market and
industry fluctuations may adversely affect the trading price of the Company's
Common Stock, regardless of the Company's actual operating performance.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Certificate of Incorporation and By-Laws
may inhibit changes in control of the Company not approved by the Board of
Directors. The Company will also be afforded the protections of Section 203 of
the Delaware General Corporation Law, which could have similar effects. See
"Description of Capital Stock."
17
<PAGE>
THE COMPANY
The Company believes it is the world's preeminent integrated media and
marketing company focused on computing and Internet-related technology, with
principal platforms in print publishing, trade shows and conferences, online
content, market research and education. The Company's 28 primary U.S. and
international titles, including its joint ventures, and over 50 licensed
publications, total more than 80 publications distributed worldwide, with a
combined circulation of more than eight million primary readers. The Company's
predecessor was founded in 1927 and pioneered the development of special-
interest magazines, including Car and Driver, Popular Photography, Stereo
Review, Boating, Skiing and Modern Bride. The Company also produces the
world's most important trade shows related to computer technology, with over
two million estimated attendees at over 50 trade shows and conferences
worldwide in 1997. The Company's COMDEX/Fall event is the number one ranked
trade show for all industries in the U.S. as measured by total revenue, total
exhibit space and number of attendees. The Company's ZDNet.com Web site is the
leading computing content site and ranked the number one Web site in 1997 in
the category of news, information and entertainment, as measured by visitors
per month. The Company's other media and marketing platforms include market
research, education and the publication of computer-related newsletters,
training manuals and materials.
The Company's principal executive offices are located at One Park Avenue,
New York, New York 10016 and its telephone number is (212) 503-3500.
RELATIONSHIP WITH SOFTBANK
The Company is an indirect subsidiary of SOFTBANK Corp., which, as of
December 31, 1997, was 50.2% owned by Mr. Masayoshi Son, its President,
including 43.4% directly held by his 99% owned holding company, MAC. Softbank
is a leading provider of information and distribution services as
infrastructure for the digital information industry. Softbank is Japan's
leading distributor of computer software as well as a leading publisher of
Japanese computer technology publications. It also is an 80% owner of Kingston
Technology Company ("Kingston"), one of the world's largest independent
providers of computer memory modules; a founder and co-owner of Japan Sky
Broadcasting Co., Ltd. ("JSkyB"), a digital satellite broadcasting venture in
Japan; a shareholder, directly or through its investment fund affiliates, in
over 50 network and computer-related venture businesses in the digital
information industry; and a 29.4% owner of Yahoo! Inc.
Upon the completion of the Reorganization, Softbank will own approximately
74.2% of the outstanding shares of Common Stock (71.4% if the U.S.
Underwriters' overallotment is exercised in full). The Company and Softbank
have entered into certain agreements governing various interim and ongoing
relationships between Softbank and the Company, including certain licensing
and management agreements relating to publications, trade shows, ZDTV and
ZDNet. See "Certain Transactions."
In addition, Softbank has given the Company an undertaking that, as long as
it owns 40% of the voting stock of the Company and can elect a majority of the
Board of Directors, it will not expand operations involving (x) publishing
information on computing and Internet-related technology through the media of
print, CD-ROM/DVD, Internet and television, or (y) producing trade shows,
conferences, exhibitions and similar events primarily related to computing and
Internet-related technology outside Japan in competition with the Company
without the prior approval of the Company's management directors after
consulting with the Company's independent directors.
This undertaking does not preclude investments by investment funds managed
by Softbank. Softbank manages certain venture capital funds which invest in,
among other things, computer and Internet-related companies. These funds may
be able to co-invest with the Company or compete with the Company with respect
to new investments. Softbank may develop new funds in the future, which funds
may compete with the Company for investment opportunities. The Company has
undertaken not to compete with Softbank in Japan without the prior approval of
SOFTBANK Corp.'s Board of Directors and has agreed to afford Softbank the
continuing right to license all of the Company's products and services in
Japan. See "Risk Factors--Control by Principal Stockholders and Potential
Conflicts of Interest" and "Certain Transactions."
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<PAGE>
In order to expand its media platforms, the Company has entered into a
license and services agreement with MAC to develop ZDTV, a 24-hour cable
television channel and integrated Web site focused exclusively on computers,
technology and the Internet. ZDTV is indirectly owned by MAC, but as part of
this license and services agreement MAC has granted the Company an option
exercisable through December 31, 1998 to purchase all of MAC's interest in
ZDTV for an amount equal to MAC's investment plus 10% per annum for the period
of its investment. Pursuant to the license and services agreement, the Company
has agreed to fund ZDTV's operations on behalf of MAC through unsecured
advances which, for approved levels of expenditure, are to be reimbursed by
MAC. Such advances bear interest at the 30-day LIBOR rate plus .50%. ZDTV's
cash requirements are expected to be approximately $54 million in 1998. The
Company's cumulative advances in respect of ZDTV, which totaled $14.4 million
net of $10.1 million in repayments through December 31, 1997, will be repaid
concurrently with the Reorganization. The Company has not yet determined
whether it will exercise its option to purchase MAC's interest in ZDTV. Any
such purchase will depend upon securing sufficient cable carriage, which may
include entering into a joint venture or other co-ownership arrangement,
including an arrangement with a third party cable system operator which will
provide carriage and also assume a portion of the ongoing cash requirements on
terms that are acceptable to the Company. ZDTV is not included in the
Company's results of operations. See "Certain Transactions."
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<PAGE>
THE REORGANIZATION
The businesses to be conducted by the Company were acquired in a series of
acquisitions and internal reorganizations undertaken by Softbank. See "The
Company--Relationship with Softbank." The Company's principal business
operations are as follows:
(i) the computer technology publishing operations of Ziff-Davis
Publishing Company ("ZD Pubco"), which Softbank acquired in February 1996
for $1.8 billion in cash and subsequently renamed Ziff-Davis Inc.;
(ii) the COMDEX computer-related trade show operations ("COMDEX"), which
Softbank acquired in April 1995 for $803 million in cash and renamed
SOFTBANK COMDEX Inc. ("SB COMDEX"); and
(iii) the computer and network-related trade show operations of Ziff-
Davis Exposition and Conference Company ("ZD Expos"), which Softbank
acquired in December 1994 for $127 million in cash and subsequently renamed
SOFTBANK Forums Inc. ("SB Forums").
Concurrently with the ZD Pubco and ZD Expos acquisitions described above,
MAC purchased certain operations and assets of these companies for $302
million and $75 million, respectively. The MAC Assets consist of certain
international consumer and Internet publications, international trade shows
and the ZDNet business, most of which were still under development. The MAC
Assets and related operations have been managed by ZDI and ZDCF since their
acquisition by MAC. As part of the Reorganization discussed below, the MAC
Assets, except for those that have been discontinued, have been or will be
acquired by the Company at a purchase price that does not exceed fair market
value. A portion of the MAC Assets was acquired by the Company on October 31,
1997 for $100 million, and the balance will be sold to the Company
concurrently with the Offerings. See "Use of Proceeds."
In October 1997, Softbank decided to combine the businesses of ZDI, SB
COMDEX and SB Forums. SB Forums and SB COMDEX were merged as of December 31,
1997, with the surviving corporation named ZDCF. In order to complete the
combination and establish the Company as a separate public company,
concurrently with the sale of the Company's Common Stock offered hereby, ZDI
and ZDCF will be contributed to the Company in exchange for 74.2% of the
Company's Common Stock, and approximately $928 million of the Company's
obligations to Softbank will be converted to equity at the initial public
offering price. The amount of intercompany indebtedness to be converted to
equity is comprised of the obligations due to Softbank as of December 31,
1997, except those repaid with borrowings under the Credit Facility and the
proceeds of the Notes Offering and a $94.2 million note which matures on
February 28, 2009. Assuming an initial public offering price of $15.50 per
share, the value of the capitalized intercompany indebtedness would have been
equivalent to 59.8 million shares of Common Stock. In addition, the Company
will receive approximately $10 million of fixed assets from Kingston in
exchange for $10 million of shares of the Company's Common Stock (valued at
the initial public offering price), which assets will be subsequently leased
back to Kingston.
As part of the Reorganization, the Company will: (i) issue 25.8 million
shares of its Common Stock in the Offering; (ii) sell $250 million aggregate
principal amount of its % Senior Subordinated Notes due 2008 in the Notes
Offering; and (iii) enter into the $1.35 billion Credit Facility and borrow
$1.25 billion thereunder. The Company will use the net proceeds from the
Offerings and the Credit Facility to (i) pay $270 million to MAC, representing
the purchase price for the remaining MAC Assets, and (ii) repay approximately
$1.589 billion of obligations to Softbank (including the Company's liability
to Softbank with respect to the $100 million purchase price for the initial
portion of the MAC Assets, net of the approximately $42 million of balances
due from MAC in connection with funding for the MAC Assets and ZDTV through
December 31, 1997), which payment will eliminate all except $94.2 million of
the remaining intercompany indebtedness as of December 31, 1997. The Company
has obtained a commitment letter from The Bank of New York, Morgan Stanley
Senior Funding, DLJ Capital Funding and The Chase Manhattan Bank to provide
such Credit Facility.
Unless the context otherwise indicates, references herein to the
"Reorganization" include all of the transactions described above. The
Offerings will be conditioned upon the completion of all such transactions
comprising the Reorganization, which shall be deemed to occur simultaneously.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and the
Notes are estimated to be $377.5 million ($434.5 million if the U.S.
Underwriters' over-allotment option is exercised in full) and $241.3 million,
respectively, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company intends to use
the proceeds from the Offerings and approximately $1.25 billion in borrowings
under the Credit Facility, to fund the approximately $270 million purchase
price of the balance of the MAC Assets (see "Risk Factors--Risks Relating to
the Reorganization") and repay approximately $1.589 billion of intercompany
obligations.
The following table summarizes the foregoing estimated sources and uses of
funds:
<TABLE>
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Sources:
Common Stock Offering.................................. $ 400,000
Notes Offering......................................... 250,000
Borrowings under Credit Facility....................... 1,250,000
----------
Total sources........................................ $1,900,000
==========
Uses:
Net payments to affiliates(1).......................... $1,588,625
Offering expenses and debt issuance costs(2)........... 41,375
Purchase balance of MAC Assets......................... 270,000
----------
Total uses........................................... $1,900,000
==========
</TABLE>
- --------
(1) Net payments to affiliates include the following:
<TABLE>
<S> <C>
(i)Repayment of notes payable to affiliates:
7.8% notes maturing March 31, 2011......................... $1,080,000
8.0% notes maturing February 28, 2010...................... 375,027
8.0% notes maturing March 31, 2010......................... 74,772
8.0% notes maturing January 1, 2007........................ 1,513
(ii) Repayment of obligations to Softbank for the October 31,
1997 purchase of certain MAC Assets..................... 100,000
(iii) Receipt from MAC of amounts due with respect to
funding the development and operations of the MAC (42,687)
Assets and ZDTV through December 31, 1997 ............ ----------
$1,588,625
==========
</TABLE>
(2) Includes $22,500 in expenses related to the issuance of Common Stock and
$18,875 of debt issuance costs.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997: (i) on a combined basis for ZDI and ZDCF; (ii) on a pro
forma basis after giving effect to the contribution of ZDI and ZDCF to the
Company, conversion of approximately $928 million of intercompany obligations
to equity and the Kingston sale-leaseback; and (iii) on a pro forma basis as
adjusted to give effect to the Offerings and the remaining debt refinancing.
See "The Reorganization." This table should be read in conjunction with
"Selected Historical Combined Financial and Other Data," "Unaudited Pro Forma
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Presentation of Financial
Information" and the Combined Financial Statements of ZDI and ZDCF.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------
ACTUAL PRO FORMA
COMBINED PRO FORMA AS ADJUSTED
---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
Debt:
Credit Facility.......................... $ -- $ -- $1,250,000
Notes.................................... -- -- 250,000
Notes payable to affiliates, including
current portion......................... 2,534,030 1,625,543 94,231
---------- ---------- ----------
Total debt........................... 2,534,030 1,625,543 1,594,231
Stockholders' equity:
Preferred Stock, Actual: No shares
authorized issued and outstanding; Pro
Forma: $.01 par value; 10,000,000 shares
authorized; no shares issued and
outstanding............................. $ -- $ -- $ --
Common Stock, $.01 par value, 1,000
shares authorized, 200 shares issued and
outstanding; Pro Forma: par value $.01
per share; 120,000,000 shares autho-
rized; 100,000,000
shares issued and outstanding........... -- -- 1,000
Additional paid-in-capital............... 248,330 1,185,865 1,562,365
Accumulated deficit...................... (119,429) (119,429) (119,429)
Deferred compensation.................... (996) (996) (996)
Cumulative translation adjustment........ (1,775) (1,775) (1,775)
---------- ---------- ----------
Total stockholders' equity............. 126,130 1,063,665 1,441,165
---------- ---------- ----------
Total capitalization................. $2,660,160 $2,689,208 $3,035,396
========== ========== ==========
</TABLE>
DIVIDEND POLICY
The Company currently intends to retain all of its earnings following the
Offering in order to finance its operations, repay indebtedness and fund
future growth and, accordingly, does not expect to pay any dividends for the
foreseeable future. The Board of Directors will review this dividend policy
from time to time in light of the conditions then existing, including the
Company's financial condition, results of operations, capital requirements,
restrictions, if any, contained in financing or other agreements binding upon
the Company, and such other factors as the Board of Directors deems relevant.
The Credit Facility and provisions of the Notes contain certain limitations on
the payment of dividends. See "Risk Factors--Dividend Policy; Holding Company
Structure" and "Description of Certain Indebtedness--Notes" and "--Credit
Facility."
22
<PAGE>
DILUTION
As of December 31, 1997 the pro forma net tangible book value of the Company
was a deficit of $1.97 billion or $26.50 per share of Common Stock. Pro forma
net tangible book value per share is determined by dividing the tangible net
worth of the Company (total assets less intangible assets and total
liabilities) by the aggregate number of shares of Common Stock outstanding,
assuming the Reorganization had taken place on January 1, 1997. After giving
effect to the sale of the 25.8 million shares of Common Stock offered hereby
(at an assumed initial offering price of $15.50 per share, the mid point of
the range set forth on the cover page of this Prospectus) and the application
of the net proceeds therefrom, pro forma net tangible book value of the
Company as of December 31, 1997 would have been a deficit of approximately
$1.59 billion, or $15.89 per share. This represents an immediate increase in
pro forma net tangible book value of $10.61 per share to Softbank, the current
stockholder of ZDI and ZDCF, and an immediate dilution in pro forma net
tangible book value of $31.39 per share to purchasers of Common Stock in the
Offering. The following table illustrates the per share dilution in pro forma
net tangible book value to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share................... $15.50
Pro forma net tangible book value per share at December
31, 1997................................................. (26.50)
Increase in pro forma net tangible book value per share 10.61
attributable to purchasers in the Offering............... ------
Pro forma net tangible book value per share after the (15.89)
Offering................................................. ------
Dilution in pro forma net tangible book value per share to $31.39
purchasers of Common Stock in the Offering (1)........... ======
</TABLE>
- --------
(1) Dilution is determined by subtracting pro forma net tangible book value
per share after the Offering from the initial public offering price per
share.
The following table summarizes, on a pro forma basis, as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid (or to be paid) and the average price per share paid
(or to be paid) by the Company's existing stockholder and by new investors
purchasing shares of Common Stock in the Offering, based on an assumed initial
public offering price of $15.50 per share, before deducting estimated offering
expenses and underwriting discounts and commissions.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------- ------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ---------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Softbank.................. 74,200,000 74.2% $1,114,051 73.6% $15.01
Purchasers of Common Stock
in the Offering.......... 25,800,000 25.8 400,000 26.4 15.50
----------- ----- ---------- -----
Total................... 100,000,000 100.0% $1,514,051 100.0% $15.14
=========== ===== ========== =====
</TABLE>
The foregoing calculations exclude an aggregate of: (i) 5,254,700 shares of
Common Stock issuable upon the exercise of options granted under the Company's
Incentive Compensation Plan; and (ii) 4,745,300 additional shares of Common
Stock reserved for grants of additional options under the Company's Incentive
Compensation, Employee Stock Purchase and Non-Employee Director Stock Option
Plans. See "Management--Compensation of Directors" and "--Stock Plans."
23
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL AND OTHER DATA
The Selected Historical Combined Financial and Other Data (i) of ZDI as of
and for the year ended December 31, 1995 and for the period January 1, 1996 to
February 28, 1996 and (ii) of ZDI and ZDCF as of and for the years ended
December 31, 1995 and 1996 and 1997 were derived from their respective
historical financial statements. Such financial statements, audited by
independent accountants, are included elsewhere herein. The historical
financial data of ZDI as of and for the years ended December 31, 1994 and 1993
is derived from ZDI's accounting records and has not been audited. The
following information should be read in conjunction with "Use of Proceeds,"
"Capitalization," "Unaudited Pro Forma Combined Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Presentation of Financial Information," the Combined Financial
Statements of ZDI and ZDCF and the Historical Consolidated Financial
Statements of ZDI, as of and for the year ended December 31, 1995 and for the
period January 1, 1996 to February 28, 1996.
<TABLE>
<CAPTION>
ZDI AND
ZDI(1) ZDCF COMBINED
-------------------------------------------- -------------------------------
YEAR ENDED TWO-MONTH YEAR ENDED
DECEMBER 31, PERIOD ENDED DECEMBER 31,
------------------------------ FEBRUARY 28, -------------------------------
1993 1994 1995 1996 1995(2) 1996(3) 1997
-------- ---------- --------- ------------ --------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue, net............ $649,452 $ 711,379 $ 768,995 $ 125,465 $ 202,729 $ 955,139 $1,153,761
Depreciation and amorti-
zation................. 38,228 34,208 91,546 15,137 24,305 139,736 154,940
Income from operations.. 29,481 80,723 55,750 7,270 62,675 87,181 109,232
Interest expense, net... 14,035 17,887 92,609 14,030 44,005 120,646 190,445
Income/(loss) before in-
come taxes............. 13,700 77,650 (40,250) (6,995) 22,869 (27,124) (72,491)
Net income/(loss)(4)(5). 13,700 77,650 (26,002) (4,547) 10,945 (52,081) (71,179)
OTHER DATA:
Capital expenditures.... $ 16,141 $ 15,119 $ 14,163 $ 552 $ 3,367 $ 22,365 $ 30,196
Ratio of earnings to
fixed charges(6)....... 1.7 4.1 -- -- 1.5 -- --
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equiva-
lents.................. $ 36,300 $1,066,606 $ 10,083 $ 13,669 $ 27,908 $ 29,915 $ 30,301
Total assets............ 308,267 2,751,525 1,623,906 1,619,905 1,090,981 3,584,173 3,546,646
Total long-term obliga-
tions.................. 353,507 1,034,000 964,153 964,153 575,450 2,522,252 2,408,240
Stockholders' equity
(deficit).............. (214,355) 391,275 365,150 360,717 397,881 447,756 126,130
</TABLE>
- --------
(1) Historical Combined Financial and Other Data of ZDI has been presented for
all periods prior to its acquisition by Softbank on February 29, 1996 as
it represents the Company's principal operations.
(2) Reflects operations of SB Forums for the year and COMDEX from the date of
acquisition by Softbank on April 1, 1995.
(3) Reflects operations of SB Forums and COMDEX for the year and ZDI from the
date of acquisition by Softbank on February 29, 1996.
(4) For the years ended December 31, 1993 and 1994, the operations of ZDI were
conducted through various partnerships. Accordingly, no income taxes have
been provided.
(5) No historical earnings per share or share data are presented as the
Company does not consider such data meaningful.
(6) For purposes of the computations, earnings before fixed charges consist of
income/(loss) before income taxes adjusted for equity earnings/losses as
appropriate, plus fixed charges. Fixed charges are defined as interest
expense plus that portion of rental expense which is deemed to be
representative of the interest factor. For the year ended December 31,
1995 and the two-month period ended February 28, 1996, ZDI's earnings were
insufficient to cover fixed charges by $36,859 and $6,760, respectively.
For the years ended December 31, 1996 and 1997, ZDI and ZDCF's earnings
were insufficient to cover fixed charges by $26,598 and $74,520,
respectively.
For information relating to the three months ended March 31, 1998, see page
33 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SEE THE TABLE ON PAGE 32 IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" FOR A PRESENTATION OF THE
COMBINED RESULTS AS IF ZDI HAD BEEN ACQUIRED ON JANUARY 1, 1995. THE COMPANY
BELIEVES THIS INFORMATION IS IMPORTANT IN EVALUATING ITS HISTORICAL RESULTS OF
OPERATIONS.
24
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information (the "Pro
Forma Financial Information") is based on the historical combined financial
statements of ZDI and ZDCF and has been prepared to illustrate the effects of
the Reorganization and the other transactions described below.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1997 gives effect to the Reorganization as if it had occurred as
of January 1, 1997. The Unaudited Pro Forma Combined Balance Sheet as of
December 31, 1997 has been prepared as if the Reorganization had occurred on
that date. See "The Reorganization."
The Pro Forma Financial Information is not necessarily indicative of the
actual results of operations or financial position of the Company at December
31, 1997 and does not purport to represent the Company's results of operations
for future periods or its future financial position.
The Pro Forma Financial Information should be read in conjunction with the
Historical Combined Financial Statements of ZDI and ZDCF and notes thereto
which are included elsewhere in this Prospectus. In management's opinion, the
Pro Forma Financial Information includes all adjustments necessary to reflect
the effects of the Reorganization and other transactions described below.
25
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
COMBINED FOR CAPITAL ADJUSTMENTS PRO FORMA
ACTUAL CONTRIBUTIONS PRO FORMA FOR REFINANCINGS AS ADJUSTED
---------- ------------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equiva-
lents................ $ 30,301 $ $ 30,301 $ $ 30,301
Accounts receivable,
net.................. 221,310 221,310 221,310
Inventories........... 17,853 17,853 17,853
Prepaid expenses and
other current assets. 37,900 37,900 37,900
Due from affiliates... 131,290 131,290 (42,687)(e) 88,603
Deferred taxes........ 8,794 8,794 8,794
---------- -------- ---------- ---------- ----------
Total current as-
sets............... 447,448 447,448 (42,687) 404,761
Property and equipment,
net.................... 53,536 10,000 (a) 63,536 63,536
Intangible assets, net.. 3,030,333 3,030,333 3,030,333
Other assets............ 15,329 15,329 18,875 (f) 34,204
---------- -------- ---------- ---------- ----------
Total assets........ $3,546,646 $ 10,000 $3,556,646 $ (23,812) $3,532,834
========== ======== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...... $ 55,468 $ $ 55,468 $ $ 55,468
Accrued expenses...... 80,094 80,094 80,094
Unearned income, net.. 154,682 154,682 154,682
Due to affiliates and
management........... 398,332 (19,048)(b) 379,284 (370,000)(g) 9,284
Current portion of
notes payable to
affiliates........... 125,790 125,790 (118,098)(h) 7,692
Other current
liabilities.......... 4,222 4,222 4,222
---------- -------- ---------- ---------- ----------
Total current lia-
bilities........... 818,588 (19,048) 799,540 (488,098) 311,442
Notes payable to affili-
ates................... 2,408,240 (908,487)(c) 1,499,753 1,413,214 (h) 86,539
Long-term debt.......... -- -- 1,500,000 (i) 1,500,000
Deferred taxes.......... 180,117 180,117 180,117
Other liabilities....... 13,571 13,571 13,571
---------- -------- ---------- ---------- ----------
Total liabilities... 3,420,516 (927,535) 2,492,981 (401,312) 2,091,669
---------- -------- ---------- ---------- ----------
Stockholders' equity:
Preferred stock(1).... -- -- --
Common stock(2)....... -- -- 1,000 (j) 1,000
Additional paid-in
capital.............. 248,330 937,535 (d) 1,185,865 376,500 (j) 1,562,365
Retained earnings
(deficit)............ (119,429) (119,429) (119,429)
Deferred compensation. (996) (996) (996)
Cumulative translation
adjustment........... (1,775) (1,775) (1,775)
---------- -------- ---------- ---------- ----------
Total stockholders'
equity............. 126,130 937,535 1,063,665 377,500 1,441,165
---------- -------- ---------- ---------- ----------
Total liabilities
and stockholders'
equity............. $3,546,646 $ 10,000 $3,556,646 $ (23,812) $3,532,834
========== ======== ========== ========== ==========
</TABLE>
- --------
(1) Actual: par value $.01 per share, no shares issued and outstanding; Pro
Forma: 10,000,000 shares authorized, no shares issued and outstanding.
(2) Actual: par value $.01 per share, 1,000 shares authorized, 200 shares
issued and outstanding; Pro Forma: par value $.01 per share, 120,000,000
shares authorized, 100,000,000 shares issued and outstanding.
26
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET
a. Reflects the transfer of approximately $10,000 of fixed assets from
Kingston in exchange for 645,161 shares of the Company's Common Stock.
b. Reflects the capitalization of amounts due to Softbank in connection with
the conversion of $927,535 of intercompany obligations.
c. Reflects the capitalization of notes payable to affiliates in connection
with the conversion of $927,535 of intercompany obligations.
d. Reflects the impact on stockholders' equity of the following:
<TABLE>
<C> <S> <C>
(i) Capitalization of amounts due to Softbank................ $ 19,048
(ii) Exchange of Common Stock for Kingston's fixed assets..... 10,000
(iii) Capitalization of notes payable to affiliates............ 908,487
--------
$937,535
========
</TABLE>
e. Represents the settlement of balances due from MAC with respect to funding
the operations and development of the MAC Assets and ZDTV.
f. Represents debt issuance costs incurred in connection with the Notes
Offering and Credit Facility.
g. Represents the payment of $100 million due to Softbank and $270 million due
to MAC for the purchase of the MAC Assets.
h. Represents the repayment of the current portion and long-term portion of
notes payable to affiliates of $118,098 and $1,413,214, respectively.
i. Represents initial borrowings under the Credit Facility of $1,250,000 and
the proceeds from the Notes Offering of $250,000.
j. Represents the issuance of 25.8 million shares of the Company's Common
Stock at an assumed initial offering price of $15.50 per share, net of
offering costs of $22,500. Assumes no exercise of the Underwriters' over-
allotment option.
27
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
COMBINED FOR CAPITAL FOR PRO FORMA
ACTUAL CONTRIBUTION PRO FORMA REFINANCINGS AS ADJUSTED
---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenue, net............ $1,153,761 $ $1,153,761 $ $ 1,153,761
---------- ---------- -----------
Cost of production...... 325,245 325,245 325,245
Selling, general and
administrative
expenses............... 564,344 (2,000)(a) 562,344 562,344
Depreciation of property
and equipment.......... 30,379 2,000 (b) 32,379 32,379
Amortization of intangi-
ble assets............. 124,561 124,561 124,561
---------- ---------- -----------
Income from operations.. 109,232 109,232 109,232
Interest expense, net... (190,445) 59,052 (c) (131,393) 8,663 (e) (122,730)
Other non-operating in-
come, net.............. 8,722 8,722 8,722
---------- ------- ---------- ------- -----------
Loss before income tax-
es..................... (72,491) 59,052 (13,439) 8,663 (4,776)
Provision (benefit) for
income taxes........... (1,312) 899 (d) (413) 3,552 (f) 3,139
---------- ------- ---------- ------- -----------
Net loss................ $ (71,179) $58,153 $ (13,026) $(5,111) $ (7,915)
========== ======= ========== ======= ===========
Pro forma basic loss per
share.................. (.08)(g)
===========
Pro forma diluted loss
per share.............. (.08)(g)
===========
Pro forma weighted
average shares
outstanding............ 100,000,000(g)
</TABLE>
----------------
For information relating to the three months ended March 31, 1998, see page
33 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
a. Represents the rental income generated by leasing back to Kingston the
fixed assets received from Kingston.
b. Represents an increase in depreciation expense associated with the fixed
assets received from Kingston.
c. Represents the reduction of interest expense resulting from the
capitalization of $908,487 of notes payable to affiliates; such notes bore
interest at an average rate of 6.5% per annum.
d. Represents the impact of the following adjustments:
<TABLE>
<C> <S> <C>
(i) Tax impact of reduced interest expense totalling
$59,052 from the capitalization of $908,487 of notes
payable to affiliates, at an effective tax rate of
41%................................................... $ 24,211
(ii) Tax benefit relating to losses generated by the MAC
Assets which would have been available to the Company
had the MAC Assets been purchased on January 1, 1997.
These benefits will not be available to the Company
following the Offering................................ (23,312)
---------
$ 899
=========
e. Represents the impact of the following adjustments:
(i) Reduction of interest expense from the repayment of
notes payable to affiliates from the proceeds of the
Offerings and the initial borrowings under the Credit
Facility.............................................. $(122,272)
(ii) Increase in interest expense related to the Notes at
an assumed interest rate of 8.00%..................... 20,000
(iii) Increase in interest expense related to the Credit
Facility at an assumed interest rate of 7.25%......... 90,625
(iv) Amortization of deferred financing costs using the
interest method....................................... 2,984
---------
$ (8,663)
=========
</TABLE>
f. Represents the income tax effect of the adjustments described in note (e)
above at an effective tax rate of 41%.
g. Pro forma basic loss per share and pro forma weighted average number of
common shares outstanding includes 100,000,000 shares of Common Stock
assumed to be outstanding upon consummation of the Reorganization. Pro
forma diluted loss per share excludes 5,254,700 Common Stock equivalents
assumed to be outstanding upon consummation of the Reorganization as
inclusion of such Common Stock equivalents would be antidilutive.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company operates in two business segments: (i) publishing and (ii) trade
shows and conferences. The Company believes it is the world's preeminent
integrated media and marketing company focused on computing and Internet-
related technology, with principal platforms in print publishing, trade shows
and conferences, online content, market research and education. The Company's
28 primary U.S. and international titles, including its joint ventures, and
over 50 licensed publications, total more than 80 publications distributed
worldwide, with a combined circulation of more than eight million primary
readers. The Company also produces the world's most important trade shows
related to computer technology, with over two million estimated attendees at
over 50 trade shows and conferences worldwide in 1997. The Company's
COMDEX/Fall event is the number one ranked trade show for all industries in
the U.S. as measured by total revenue, total exhibit space and number of
attendees. The Company's ZDNet.com Web site is the leading computing content
site and ranked the number one Web site in 1997 in the category of news,
information and entertainment, as measured by visitors per month. The
Company's other media and marketing platforms include market research,
education and the publication of computer-related newsletters, training
manuals and materials.
The Company had net revenue of $1.154 billion for 1997. A substantial
portion of the Company's revenue is derived from the sale of advertising,
which in 1997 accounted for 51.9% of total revenue. No single advertiser has
comprised more than 3% of the Company's advertising revenue during any of the
last three years. However, the Company's top 20 advertisers accounted for
32.1% of total advertising revenue for 1997.
In the publishing segment, the Company's principal sources of revenue are
advertising (67.3% of 1997 total publishing revenue), circulation (17.4%) and
other (15.3%). Circulation comprises both paid subscriptions (10.8%) and
newsstand sales (6.6%) while other includes educational and training materials
(5.4%) and market research studies (6.2%) with the balance primarily
consisting of royalties, reprints and other miscellaneous sales. In the trade
shows and conferences segment, revenue is derived from two principal sources:
sale of exhibit space (64.8% of 1997 total segment revenue) and attendee
conference and seminar fees (14.9%). Unlike many trade show producers, the
Company derives a significant portion of its trade show revenue from other
sources (20.3%), including advertising in show-related publications,
billboards, banners, fees from managing customer-sponsored events and other
show-related activities. The Company believes these other sources will
continue to be an important growth area, particularly for its content-focused
events.
In the publishing business, the principal components of the Company's
production costs are raw materials, printing and distribution, which
represented 34.6%, 37.5% and 26.7%, respectively, of total 1997 publishing
production expenses. The Company's principal raw material is paper. Paper
supply and prices are subject to volatility and may be significantly affected
by many factors, including market and economic conditions. See "Risk Factors--
Risks Associated with Fluctuations in Paper and Postage Costs" and "--
Inflation and Change in Paper Prices." The principal components of production
costs within the trade shows and conferences business are the costs of renting
and preparing the facilities to hold the events (33.6%), direct mail and the
related costs for promotion of the events (33.2%) and program development and
presentation costs (11.3%).
The other principal operating costs for the Company are selling, general and
administrative expenses, including editorial costs. Included in these costs
are salaries, sales commissions and benefits (49.8%) along with marketing and
promotion expenses related to advertising and circulation (18.8%).
The Company's revenue and profitability are influenced by a number of
external factors, including the volume of new technology product
introductions, the amount and allocation of marketing expenditure by the
Company's clients, the extent to which sellers elect to advertise using print
and online media or participate in trade shows and conferences, changes in
paper prices, availability of appropriate venues for its largest trade shows
and conferences and competition among computer technology marketers (including
print publishers, producers of trade shows and providers of other technology
information services). Accordingly, the Company may experience fluctuations in
revenue from period to period. Many of the Company's large customers
30
<PAGE>
concentrate their advertising expenditures around major new product launches.
Marketing expenditures by technology companies can also be affected by factors
affecting the computer industry generally, including pricing pressures and
temporary surpluses of inventory. Revenue and profitability are also
influenced by product mix and the timing and frequency of the Company's new
product launches and launches in new markets, as well as by acquisitions. New
publications generally require several years to achieve profitability and upon
achieving initial profitability, often have lower margins than more
established publications. The launch of new publications, trade shows and
services are funded with cash flow from operations and are expensed as
incurred. Accordingly, the Company's revenue from year to year may be affected
by the number and timing of new product launches. If the Company concludes
that a new publication, trade show or service will not achieve certain
milestones with regard to revenues, profitability and cash flow within a
reasonable period of time, management may discontinue such publication, trade
show or service or merge it into another existing publication, trade show or
service. See "Risk Factors--New Product Risks."
The Company's taxable income for 1998 will be greater than the pre-tax
income reported in its financial statements. The difference results from
certain items which are non-deductible for income taxes, primarily losses
generated from the MAC Assets prior to transfer to the Company and non-
deductible goodwill amortization (see Note 8 to the Combined Financial
Statements of ZDI and ZDCF). Consequently, the Company's effective tax rate
for the year will be significantly in excess of the statutory rates. In
accordance with generally accepted accounting principles, the Company will
record income taxes on a quarterly basis at the estimated annual effective tax
rate. As a result, the Company expects to record income tax benefits in
quarters where pre-tax losses are incurred and income tax expense in periods
where pre-tax profits are generated.
Historically, the financing requirements of the Company have been funded
through intercompany loans and advances, totaling $2.5 billion at December 31,
1997, of which $126 million was current. As a result of the Reorganization,
the Company's intercompany debt owed to Softbank will be reduced to $94.2
million. Such indebtedness bears interest at 9.9% and matures in February
2009. Concurrently with the Offering, the Company will enter into the $1.35
billion Credit Facility and borrow $1.25 billion thereunder. See "--Liquidity
and Capital Resources."
PRESENTATION OF FINANCIAL INFORMATION
ZD Inc. was incorporated on February 4, 1998. Concurrent with the completion
of the Offerings, all of the common stock of ZDI and ZDCF, the Company's
principal operating subsidiaries, will be contributed to the Company.
These subsidiaries were acquired in a series of acquisitions and internal
reorganizations undertaken by the Company's principal stockholder, Softbank.
In December 1994, Softbank acquired SB Forums for $127 million in cash. The
acquisition was accounted for using the purchase method of accounting and
accordingly, the results of operations of SB Forums are included in the
Combined Financial Statements of ZDI and ZDCF for 1995, 1996 and 1997.
In April 1995, SOFTBANK acquired SB COMDEX for $803 million in cash, plus
transaction costs. The acquisition was accounted for using the purchase method
of accounting and accordingly, SB COMDEX's results are included in the
Combined Financial Statements since the date of acquisition. As of December
31, 1997, SB Forums and SB COMDEX were merged, with the surviving corporation
named ZD Comdex and Forums (ZDCF).
In February 1996, Softbank acquired Ziff-Davis Publishing Company
(subsequently renamed Ziff-Davis Inc.) for $1.8 billion in cash. The
acquisition of ZDI has been accounted for using the purchase method of
accounting and accordingly, the results of ZDI are included in the Combined
Financial Statements since the date of acquisition. ZDI's results of
operations for periods prior to the date of acquisition are set forth in the
ZDI Financial Statements included elsewhere in this Prospectus.
31
<PAGE>
In connection with the acquisition of SB Forums and ZDI described above,
MAC, Softbank's largest shareholder, purchased certain operations and assets
of these companies for $75 million and $302 million, respectively. The MAC
Assets consist of certain international publications, consumer and Internet
publications, international trade shows and the ZDNet business, most of which
were still under development. As part of the Reorganization, the MAC Assets,
except for those which have been discontinued, have been or will be sold to
the Company. The acquisition of the MAC Assets has been accounted for in a
manner similar to a pooling of interests and is reflected in the Combined
Financial Statements of ZDI and ZDCF for all periods presented.
Due to the acquisition of ZDI on February 29, 1996 and the resulting
revaluation of assets and liabilities and the change in the Company's capital
structure, the historical financial statements of ZDI and ZDCF are not
directly comparable. The table below presents the Company's pro forma results
for 1996 and 1995 as if ZDI and ZDCF had been under common control since
January 1, 1995. The results of SB COMDEX are included since April 1, 1995.
The combined results for 1995 and 1996 were derived by combining the statement
of operations for ZDI for the year ended December 31, 1995 and for the period
January 1, 1996 to February 28, 1996 with the combined statement of operations
for ZDI and ZDCF for the years ended 1995 and 1996. In addition, the purchase
accounting adjustments related to the 1996 acquisition of ZDI have been
reflected as of January 1, 1995 resulting in pro forma amortization, interest
and income tax provision adjustments. Such adjustments are further described
in note (a) to the table set forth below under "--Results of Operations." No
pro forma adjustments have been made related to the acquisition of SB COMDEX
as such adjustments are not material. Although such combination is not in
accordance with generally accepted accounting principles, management believes
the combined statements present the most meaningful basis of comparison.
Intercompany transactions for those periods were immaterial. The financial
information presented herein may not necessarily reflect the results of
operations which would have occurred had the Company been a stand-alone
entity.
32
<PAGE>
RESULTS OF OPERATIONS
The table below presents the combined results as if ZDI had been acquired on
January 1, 1995.
<TABLE>
<CAPTION>
ZDI AND ZDCF
YEAR ENDED DECEMBER 31,
----------------------------------
PRO FORMA
---------------------- ACTUAL
1995 1996 1997
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue, net:
Publishing............................... $ 768,995 $ 815,720 $ 866,233
Trade shows and conferences.............. 202,729 264,884 287,528
---------- ---------- ----------
971,724 1,080,604 1,153,761
---------- ---------- ----------
Cost of production:
Publishing............................... 193,646 215,271 225,712
Trade shows and conferences.............. 68,810 87,373 99,533
---------- ---------- ----------
262,456 302,644 325,245
Selling, general and administrative ex-
penses.................................... 474,992 528,636 564,344
Depreciation and amortization(a)........... 154,163 161,259 154,940
---------- ---------- ----------
Income from operations..................... 80,113 88,065 109,232
Interest expense, net(a)................... (133,130) (135,500) (190,445)
Other non-operating income................. 808 6,106 8,722
---------- ---------- ----------
Loss before income taxes................... (52,209) (41,329) (72,491)
Provision (benefit) for income taxes....... 9,607 25,682 (1,312)
---------- ---------- ----------
Net loss(a)................................ $ (61,816) $ (67,011) $ (71,179)
========== ========== ==========
OTHER DATA:
EBITDA(b).................................. $ 235,084 $ 255,430 $ 272,894
Cash and cash equivalents, end of year..... 37,991 29,915 30,301
Net cash provided (used) by operating ac-
tivities.................................. 63,231 65,681 (3,364)
Net cash used by investing activities...... (2,889,426) (66,856) (44,196)
Net cash from financing activities......... 1,793,361 6,768 47,946
</TABLE>
- --------
(a) The acquisition of ZDI on February 29, 1996 gave rise to different bases
of accounting for the period after the acquisition versus the period prior
to the acquisition. This is primarily due to a purchase price which
exceeded the book value of the assets acquired, financed by a higher level
of both debt and equity as compared to the pre-acquisition capital
structure. The amounts indicated above assume that the acquisition of ZDI
took place on January 1, 1995; therefore, depreciation and amortization,
interest expense and net loss have been increased (decreased) by
approximately $6,386, $824 and $10,383, respectively, for 1996 and
$38,312, $(3,484) and $46,759, respectively, for 1995.
(b) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and amortization. EBITDA is not intended to
represent cash flows from operations and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. The Company
believes that EBITDA is a standard measure commonly reported and widely
used by analysts, investors and other interested parties in the publishing
and media industries.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997 (UNAUDITED)
For the first quarter of 1998, the Company will report revenue of $228.1
million compared to $224.9 million for the first quarter of 1997. Revenue from
publishing operations will decline approximately 4.1% primarily due to the
absence of $12.8 million of revenue from Macuser and MacWeek magazines, which
were transferred in October 1997 to a 50/50 joint venture with another
publishing company and are no longer consolidated in the Company's results.
The publishing segment will also report lower advertising revenue from its
business publications principally as a result of factors affecting the
computer technology industry generally, including slowing demand for computer
products, fewer new product launches, pricing pressures, vendor market share
shifts and excess PC inventories in distribution channels. This decline will
be largely offset by increased
33
<PAGE>
advertising sales in the Company's Internet business and consumer
publications. More than offsetting the decline in publishing revenue will be
an increase of 77% in revenue from the Company's tradeshows and conferences
operations, primarily the result of earlier production of two events in the
first quarter of 1998 that had been held in the second quarter of 1997.
The Company will report a loss from operations of $24 million for the first
quarter of 1998 as compared with a loss from operations of $15.6 million for
the first quarter of 1997. Reported EBITDA for the first quarter of 1998 will
be $15.1 million as compared to $25.5 million for the comparable period of
1997. The unfavorable variances are primarily due to the lower level of
advertising in business publications, which have higher profit margins than
consumer publications or the Internet business, coupled with approximately
$3.2 million of one-time costs for office relocations and $1.4 million of
expenses incurred in launching two new publications.
As indicated below under "Seasonality," the first quarter accounted for
approximately 19.4% and 19.5% of the Company's revenue in 1996 on a pro forma
basis and 1997, respectively, and approximately 12.0% and 9.4% of the
Company's EBITDA for the respective years.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH PRO FORMA YEAR ENDED DECEMBER 31,
1996
Revenue
Revenue increased by $73.2 million or 6.8% from $1,080.6 million in 1996 to
$1,153.8 million in 1997.
Revenue from publishing grew by $50.5 million or 6.2% from $815.7 million to
$866.2 million. Approximately $22 million was due to inclusion of a full year
of results for the electronic gaming publications acquired in mid-1996 and two
publications launched in late 1996. Revenue from Internet services increased
$13.5 million or 71.9% due to higher advertising volume attributable to the
Company's growing presence on the Internet. Increases in advertising rates,
generally ranging between 3% and 10%, and a 5.1% increase in advertising pages
contributed $11.5 million. Revenue from international operations, which
generated 10.2% of the segment's revenue, decreased by $6.6 million due to the
strengthening of the U.S. dollar relative to the major European currencies.
Continued growth from new educational product launches and sales of market
research studies accounted for the balance of the revenue growth.
Revenue from trade shows and conferences increased $22.6 million or 8.5%
from $264.9 million to $287.5 million. Approximately $15 million of the
increase was due to 11 new trade show launches, including revenue from
ancillary show-related sources. The balance of revenue growth was due to
higher exhibitor rates charged at the major events, partly offset by a decline
in revenue from COMDEX/Spring and certain U.K. events.
Cost of production
Production costs increased $22.6 million or 7.5% from $302.6 million to
$325.2 million.
Publishing production costs increased $10.4 million or 4.8% from $215.3
million in 1996 to $225.7 million. Costs related to new launches and volume-
related growth increased approximately $20 million but were partly offset by
approximately $10 million of lower paper costs.
The costs of producing trade shows and conferences increased $12.2 million
or 14.0% from $87.3 million to $99.5 million primarily as a result of costs
related to new events launched in 1997.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $35.7 million or 6.8%
from $528.6 million to $564.3 million. The increase was due to the addition of
employees to support base business volume growth and launches of new products
and services. Results included a one-time $6.0 million charge for the
consolidation and restructuring of the trade shows and conferences business
which was announced in the fourth quarter of 1997. Costs for the publishing
segment rose 4.2% while those for the trade shows and conferences segment rose
22.1% due to the number of new launches and the one-time restructuring charge.
34
<PAGE>
Depreciation and amortization
Total depreciation and amortization decreased $6.3 million to $154.9 million
in 1997. The reduction in depreciation and amortization expense was a result
of certain assets being fully depreciated in 1996.
Interest expense, net
Net interest expense increased $54.9 million or 40.5% to $190.4 million in
1997 due to interest on an additional $900 million of intercompany
indebtedness to Softbank incurred to finance a return of capital.
Other non-operating income, net
Other non-operating income/expense primarily reflects the Company's equity
share of earnings and losses from joint ventures and fees earned from
management of trade shows and conferences not produced by the Company. Income
increased $2.6 million from $6.1 million in 1996 to $8.7 million or 42.6%
reflecting growth in fees from managed events and reduced losses from joint
ventures.
Income Taxes
The 1997 combined income tax benefit of $1.3 million compares to a pro forma
income tax provision of $25.7 million in 1996. The improvement in the tax
provision is due to a higher pre-tax loss giving rise to a tax benefit. The
difference between the 1997 and 1996 effective tax rates and the federal
statutory tax rate of 35.0% is primarily due to non-recognition of tax losses
generated by the MAC Assets ($56.9 million and $77.2 million in 1997 and 1996,
respectively), non-deductible goodwill amortization ($10.2 million and $8.6
million, respectively) and state and local income taxes. In addition, the 1996
tax provision increased approximately $3.2 million as a result of pro forma
adjustments related to the ZDI acquisition.
Net loss
As a result of the changes described above, net loss for the period
increased $4.2 million or 6.2% from $67.0 million to $71.2 million.
EBITDA
EBITDA for 1997 was $272.9 million, an increase of $17.5 million or 6.8%
from the $255.4 million generated in 1996. The increase was due to higher
revenue and management fee income, net of higher production costs and selling,
general and administrative expenses. The ratio of EBITDA to revenue remained
relatively constant at 23.7% for 1997 compared to the 1996 margin of 23.6%.
Excluding the one-time charge related to the consolidation and restructuring
of the trade shows and conferences business, the 1997 ratio would have been
24.2%.
PRO FORMA YEAR ENDED DECEMBER 31, 1996 COMPARED WITH PRO FORMA YEAR ENDED
DECEMBER 31, 1995
Revenue
Revenue increased by $108.9 million or 11.2% from $971.7 million in 1995 to
$1,080.6 million in 1996.
Revenue from publishing grew by $46.7 million or 6.1% from $769.0 million to
$815.7 million. Higher overall advertising rates combined with a 12.4% growth
in advertising pages contributed 47.5% of the revenue increase while the mid-
1996 acquisition of several electronic gaming publications accounted for 28.5%
of the increase. New educational product launches and growth in sales of
market research studies accounted for the balance of revenue growth. Internet
revenue was slightly below the prior year due to the transition from a
business based on membership and subscription fees to one which is supported
primarily by advertising.
Revenue from trade shows and conferences increased $62.2 million or 30.7%
from $202.7 million to $264.9 million. The launch of new international trade
shows accounted for 36.7% of the growth while the introduction of customized
events contributed 19.8%. The balance of the increase was due to growth in
exhibitor square footage and rates at the Company's major U.S. shows.
35
<PAGE>
Cost of production
Production costs increased $40.2 million or 15.3% from $262.4 million to
$302.6 million.
Publishing production costs increased $21.6 million or 11.2% from $193.7
million to $215.3 million, primarily due to volume-related growth and higher
paper costs. Approximately 31.5% of the increase was attributed to costs for
the magazines acquired mid-year while increased frequencies on certain
publications and a full year of costs for publications launched in late 1995
accounted for 18.1% of the increase.
The costs of producing trade shows and conferences increased $18.6 million
or 27.0% from $68.8 million to $87.4 million. The increase was driven by the
cost of new product launches as well as higher direct marketing and facility-
related fees for the major U.S. events.
Selling, general and administrative expenses
Selling, general and administrative expenses rose $53.6 million or 11.3%
from $475.0 million to $528.6 million. This increase reflects the addition of
employees to support growth in the base business along with the launches of
new products and services. Costs for the publishing segment rose 5.8% while
those for the trade shows and conferences segment rose 61.6%, reflecting a
higher level of new launches and the absence of COMDEX related expenses for
the first three months of 1995 (COMDEX was acquired April 1, 1995).
Depreciation and amortization
Total depreciation and amortization of $161.3 million increased $7.1 million
from $154.2 million in 1995 primarily due to the inclusion of a full year's
depreciation and amortization relating to SB COMDEX, which was acquired April
1, 1995.
Interest expense, net
Net interest expense increased $2.4 million or 1.8% on a pro forma basis due
to higher average debt levels in 1996.
Other non-operating income, net
Income increased to $6.1 million compared to $.8 million in 1995 due to the
growth in fees from managed events along with reduced losses from joint
ventures.
Income Taxes
The combined income tax provision of $25.7 million compares to an income tax
provision of $9.6 million in 1995. The unfavorable variance in income taxes
and the difference in the 1996 and 1995 effective tax rates from the federal
statutory tax rate of 35% is primarily attributable to non-recognition of tax
losses generated by the MAC Assets ($77.2 million in 1996) and non-deductible
goodwill amortization ($8.6 million in 1996). In addition, the tax effects of
the 1996 and 1995 pro forma adjustments relating to the ZDI acquisition were a
$3.2 million and $11.9 million increase in tax provision, respectively.
Net Loss
As a result of the changes described above, net loss for the period
increased $5.2 million or 8.4% from $61.8 million to $67.0 million.
EBITDA
EBITDA for 1996 was $255.4 million, an increase of $20.3 million or 8.7%
from the $235.1 million generated in 1995. The increase was due to higher
revenue and management fee income, net of higher production costs and selling,
general and administrative expenses. The cost of new product launches caused
the growth rate of expenses to exceed the revenue growth rate and, as a
result, the ratio of EBITDA to revenue of 23.6% decreased slightly from 24.2%
for 1995.
36
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the financing requirements of the Company have been funded
through intercompany loans and advances.
As a result of the Reorganization, the Company's intercompany debt owed to
Softbank will be reduced to $94.2 million. Such indebtedness bears interest at
9.9% and matures in February 2009. Concurrently with the Offering, the Company
intends to issue and sell $250 million aggregate principal amount of Notes. In
addition, the Company will enter into the $1.35 billion Credit Facility, and
borrow $1.25 billion thereunder, to provide additional funds for the repayment
of intercompany debt to Softbank and to provide for the Company's working
capital requirements. It is expected that Softbank will apply a portion of the
amounts received by it to the Reorganization, among other things, to prepay
all amounts outstanding under a credit facility (under which the Company is a
guarantor) and terminate the commitments thereunder. See "Certain
Transactions--Certain Related Party Transactions."
The Credit Facility will consist of a seven year $500 million reducing
revolving credit facility (with $400 million drawn at closing), a seven year
$450 million term loan and an eight year $400 million term loan. There will be
no scheduled reductions in the revolving credit commitment or amortization
under the term loan until September 2000. The Company has obtained a
commitment letter from The Bank of New York, Morgan Stanley Senior Funding,
DLJ Capital Funding and The Chase Manhattan Bank to provide such Credit
Facility. The consummation of each of the Offerings and the borrowings under
the Credit Facility are conditioned upon, and will occur simultaneously with,
the consummation of the others.
Cash and cash equivalents were $30.3 million and $29.9 million at December
31, 1997 and 1996, respectively. The balance increased $.4 million due to the
factors discussed below:
Cash (used) provided by operating activities was $(3.4) million and $65.7
million for the years ended December 31, 1997 and 1996, respectively. The
decrease from 1996 to 1997 was the result of higher interest expense and final
payment of long-term incentives to management established in connection with
the sale of ZDI in 1994.
For the year ended December 31, 1997, the Company used $44.2 million in cash
for investing activities, principally $30.2 million in capital expenditures.
The majority of these expenditures were for computer equipment and leasehold
improvements. The Company believes that future capital expenditures associated
with new office space will be approximately $35 million in 1998 and $25
million in 1999 (net of tenant improvement credits). Cash used for investing
activities on a pro forma basis for 1996 was $66.8 million principally due to
capital expenditures of $22 million and the acquisition of Sendai Publishing
Group for $28 million.
For the year ended December 31, 1997, the Company generated $47.9 million in
cash from financing activities, principally $66.6 million of capital
contributed by MAC to fund the operating losses of the MAC Assets, net of a
$21.4 million repayment of intercompany indebtedness. Pro forma cash flow from
financing activities for the year 1996 was $6.8 million, primarily from
capital contributions of $14.8 million from Softbank offset by a dividend of
$8.0 million.
The Company believes that, based on its current level of operations and
anticipated growth, the Company's ability to generate cash, together with
other available sources of funds including available cash on hand at December
31, 1997, of $30.3 million, will be adequate over the next 12 months to make
required payments of principal and interest on the Company's indebtedness, to
fund anticipated capital expenditures and future working capital requirements.
However, actual capital requirements may change, particularly as a result of
any acquisitions the Company may pursue. The ability of the Company to meet
its debt service obligations and reduce its total debt will depend upon the
future performance of the Company.
The Company has entered into a license and services agreement with MAC to
develop ZDTV. ZDTV is indirectly owned by MAC, but as part of this license and
services agreement MAC has granted the Company an option exercisable through
December 31, 1998 to purchase all of MAC's interest in ZDTV for an amount
equal
37
<PAGE>
to MAC's investment plus 10% per annum for the period of its investment.
Pursuant to the license and services agreement, the Company has agreed to fund
ZDTV's operations on behalf of MAC through unsecured advances which, for
approved levels of expenditure, are to be reimbursed by MAC. Such advances
bear interest at the 30-day LIBOR rate plus .50%. ZDTV's cash requirements are
expected to be approximately $54 million in 1998. The Company's cumulative
advances in respect of ZDTV, which totaled $14.4 million net of $10.1 million
in repayments through December 31, 1997, will be repaid concurrently with the
Reorganization. The Company has not yet determined whether it will exercise
its option to purchase MAC's interest in ZDTV. Any such purchase will depend
upon securing sufficient cable carriage, which may include entering into a
joint venture or other co-ownership arrangement, including an arrangement with
a third party cable system operator which will provide carriage and also
assume a portion of the ongoing cash requirements on terms that are acceptable
to the Company. ZDTV is not included in the Company's results of operations.
In the event that the Company acquires a controlling interest in ZDTV from
MAC, such acquisition would be accounted for as a pooling transaction; in the
event that the Company acquires a non-controlling interest, such acquisition
would be accounted for under the equity method. See "Certain Transactions."
SEASONALITY
Historically, the Company's business has been seasonal as a significant
portion of the trade shows and conferences segment revenue has occurred in the
second and fourth quarters. In addition, the Company's publishing segment has
generated higher revenue in the second and fourth quarters. The following
table sets forth certain unaudited quarterly combined statements of operations
data for each of the eight quarters in the period ended December 31, 1997. In
the opinion of the Company's management, this unaudited information has been
prepared on a basis consistent with the audited Combined Financial Statements
of ZDI and ZDCF appearing elsewhere in this Prospectus (with the exception of
the March 31, 1996 data which has been prepared on the basis described in
Presentation of Financial Information above) and includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein when read in conjunction with the Combined
Financial Statements and related notes thereto. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net:
Publishing............. $189,984 $197,121 $195,731 $232,884 $209,564 $219,195 $199,745 $237,729
Tradeshows and confer-
ences................. 19,661 69,047 53,631 122,545 15,321 82,135 24,227 165,845
-------- -------- -------- -------- -------- -------- -------- --------
Total Revenue........... 209,645 266,168 249,362 355,429 224,885 301,330 223,972 403,574
Percentage of total
year.................. 19.4% 24.6% 23.1% 32.9% 19.5% 26.1% 19.4% 35.0%
Cost of production...... 55,818 76,456 73,568 96,802 61,526 92,986 62,716 108,017
Selling, general and
administrative
expenses............... 122,730 122,846 133,035 150,025 139,980 143,243 143,131 137,990
Depreciation and amorti-
zation................. 35,284 41,692 41,793 42,490 38,966 39,032 39,699 37,243
Income (loss) from oper-
ations................. (4,187) 25,174 966 66,112 (15,587) 26,069 (21,574) 120,324
Income (loss) before
taxes.................. (28,139) (14,260) (30,556) 31,626 (60,145) (17,715) (66,937) 72,306
Net income (loss)....... (34,559) (20,680) (36,977) 25,205 (59,817) (17,387) (66,609) 72,634
EBITDA.................. 30,752 67,823 45,828 111,027 25,534 68,216 20,486 158,658
Percentage of total
year.................. 12.0% 26.6% 17.9% 43.5% 9.4% 25.0% 7.5% 58.1%
</TABLE>
INFLATION AND CHANGES IN PAPER PRICES
The Company continually assesses the impact of inflation and changes in
paper prices. The Company generally enters into contracts for the purchase of
paper which adjust the price on a quarterly basis. Paper prices began to rise
in 1994, rose significantly in 1995 and 1996 then decreased in 1997.
Management expects paper prices to increase again in 1998. The Company will
continue to monitor the impact of inflation and paper prices and will consider
these matters in setting its pricing policies.
38
<PAGE>
The Company frequently reviews its purchasing and manufacturing processes
for opportunities to reduce costs and mitigate the impact of paper price and
postage rate increases (such as purchasing lighter-grade paper stock or, when
paper prices are at cyclical lows, increasing paper inventory or entering into
longer term contracts with suppliers). However, the Company has not entered,
and does not currently plan to enter, into long-term forward price or option
contracts for paper. See "Risk Factors--Risks Associated with Fluctuations in
Paper and Postage Costs" and "Business--Print Publishing--Paper and Printing."
YEAR 2000 ISSUES
The Company uses a number of computer software programs and operating
systems, including applications for its internal electronic communications
network and for various administrative and billing functions. The Company has
assessed the scope of the Company's risks related to problems these computer
systems may have in processing date information related to the year 2000 and
believes such risks are not significant.
The Company has identified all of its significant internal software
applications which contain source codes that may be unable to appropriately
interpret the year 2000 and has already begun to modify or replace those
applications. The estimated costs to modify or replace these applications are
not material to the Company.
In addition, the Company has inquired of its vendors and business partners
about their progress in identifying and addressing problems related to the
year 2000. All major vendors with whom the Company exchanges electronic
information or on whose internal software applications the Company may be
dependent, have committed to the Company that plans are in place to be
compliant before processing of information related to calendar year 2000 would
be required. Although no assurance can be given that all of these third party
systems will be year 2000 compliant, the Company believes that risk is not
significant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997, will
require the Company to disclose, in financial statement format, all non-owner
changes in equity. Such changes include, for example, cumulative foreign
currency translation adjustments, certain minimum pension liabilities and
unrealized gains and losses on securities available for sale. This statement
is effective for fiscal years beginning after December 15, 1997 and requires
presentation of prior period financial statements for comparability purposes.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Generally, financial information is required to be reported on the basis that
is used internally for evaluating segment performance and deciding how to
allocate resources to segments.
SFAS No. 132, "Employer's Disclosure about Pensions and Other Postretirement
Benefits," is effective for the year ended December 31, 1998. This statement
revises the disclosure requirements for employers' pension and other retiree
benefits.
The Company expects to adopt the above statements beginning with its 1998
financial statements.
FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other sections of this Prospectus contain forward-looking
statements which are subject to various risks and uncertainties. Actual
results could differ materially from those discussed herein. Important factors
that could cause or contribute to such differences include those discussed
under "Risk Factors" as well as those discussed elsewhere in this Prospectus.
39
<PAGE>
INDUSTRY
Technology is widely recognized as one of the largest and fastest growing
sectors of the United States economy. The market for technology goods and
services is undergoing rapid expansion, largely fueled by: (i) increased
integration of computers into the workplace and home; (ii) shortened product
life cycles; and (iii) increased use of the Internet. The demand for computer
technology to enhance productivity as well as the increasing number of
applications in the areas of education, entertainment and communications has
dramatically increased the number of computers in use. The number of personal
computers in use worldwide has doubled from 150 million in 1995 to over 300
million in 1997, significantly broadening the consumer and business markets
for computer technology. In addition, rapid technological advances have
shortened product life cycles; for example, the estimated marketable product
life of a PC has decreased from five years in 1981 to less than six months
today. The Internet has also become a widely accepted information tool as
demonstrated by the proliferation of users, with 68 million adults in the U.S.
having used the Internet by year-end 1997, up from just five million in 1994,
and the sharp increase in the number of commercial Web sites worldwide, from
30,000 in 1995 to approximately 400,000 in 1997.
For buyers and users of computer technology products, these factors have
increased the demand for objective, up-to-date information and analysis. For
sellers of such products, these factors have increased their need to
communicate a wide range of information regarding their products and services,
from advertising designed to increase sales to education designed to improve
end-user satisfaction and build brand loyalty. Computer technology-focused
media enable sellers to communicate their message effectively by targeting a
focused customer base. As a result of the broadening of the consumer base, as
well as the favorable demographics of this base, computer technology
publications and other media are becoming increasingly attractive as a
platform for consumer product advertising.
COMPUTER TECHNOLOGY PRINT PUBLICATIONS MARKET
In 1996, advertising revenue in computer-oriented print publications
totalled $1.3 billion. In 1997, advertising revenue in computer-oriented
publications grew by 11.2% while the advertising market as a whole grew by
8.3% in the first ten months (the latest period for which data is available)
as compared to the same period in the prior year. Growth in advertising and
circulation revenue for computer-oriented publications has outpaced the
publishing industry in general, growing 10.4% a year from 1994 to 1997, versus
6.3% a year for all periodicals.
COMPUTER TECHNOLOGY TRADE SHOWS
A trade show can be described as a face-to-face version of a print
publication. Trade show attendees, like readers of print publications, are
presented with product advertisements in the form of exhibits and "editorial"
content in the form of conferences and other ancillary forums. Producers of
trade shows and conferences generate revenue from exhibit space sales,
advertising and conference and general attendance fees. Trade shows and
conferences allow sellers to conduct a large volume of face-to-face sales
presentations to qualified buyers in a short period of time. Professional
attendees include hardware and software manufacturers and developers, sales
and distribution personnel and large volume end-users. Industry leaders such
as Microsoft Corporation, Intel Corporation and Cisco Systems, Inc. have
consistently used these events to promote the launch of important products in
order to reach top-ranking decision-makers in the computer technology
industry.
Trade shows are becoming an increasingly important part of the marketing
strategy for information technology vendors. A recent study noted that
companies consider trade shows one of the most effective mediums for
generating and closing sales, second only to direct selling. Exhibit space
revenues from North American computer-product trade shows were approximately
$573 million in 1997. In 1997, exhibit square footage rose 28% at such shows,
the number of exhibiting firms increased 20% and attendance rose 28%.
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<PAGE>
ONLINE AND OTHER TECHNOLOGY INFORMATION SERVICES
The proliferation of Web sites and the growing number of users combine to
make the Internet an increasingly significant advertising and brand-building
vehicle. The Internet enables marketers to deliver targeted messages as a
result of the ability to track consumer behavior and immediately convert
advertising responses into commercial transactions. The advertising-based
business model for online services, which is similar to print and television
media, involves the payment to Internet content and service providers of
advertising fees based primarily on the demographics and purchasing habits of
the audience and on the number and positioning of advertisements delivered.
The market for advertising on the Internet was approximately $597 million in
1997, a 152.6% increase from 1996. The computer technology industry has been
one of the leading advertisers on the Internet, comprising 35% of all
advertising dollars for the twelve months ended September 30, 1997. Web sites
focused on computing content provide yet another forum for sellers of computer
technology to deliver targeted product information and advertising to a
premium customer base. The Company expects that the Internet market, like the
publications market, will continue to broaden and gain appeal as a platform
for consumer product advertising as well.
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<PAGE>
BUSINESS
The Company believes it is the world's preeminent integrated media and
marketing company focused on computing and Internet-related technology, with
principal platforms in print publishing, trade shows and conferences, online
content, market research and education. The Company provides global technology
companies with marketing strategies for reaching key decision-makers. The
Company is the successor to Ziff-Davis Publishing Company, which pioneered the
development of special-interest magazines; Ziff-Davis Exposition and
Conference Company; and the COMDEX computer and network-related trade show
operations of Interface Group-Nevada, Inc.
The Company's PC Magazine, PC Week and Computer Shopper magazines are the
top three computer magazines in the U.S. and are among the top 25 U.S.
magazines, each as measured by total revenue in 1996 (the latest year for
which data is available). The Company also produces the world's most important
trade shows serving vendors, resellers, buyers and users of computer
technology, including COMDEX/Fall, the largest trade show in the U.S. in 1997.
The Company's ZDNet.com Web site is the leading computing content site and
ranked the number one Web site in 1997 in the category of news, information
and entertainment, as measured by visitors per month.
The Company's 28 primary U.S. and international titles, including its joint
ventures, and over 50 licensed publications, total more than 80 publications
distributed worldwide, with a combined circulation of over eight million
primary readers. In 1997, Ziff-Davis was the largest technology publisher in
the U.S. in terms of total magazine revenue. In that same year, Ziff-Davis
accounted for 36.8% of all advertising and circulation dollars spent in
computer periodicals, with at least 50% more total magazine revenue than its
closest competitor. The Company's publications include PC Magazine, the
largest circulation computer magazine in the world, Computer Shopper, the
leading magazine targeted at direct buyers of computers (along with its Web-
based companion, Netbuyer), Computer Life, a monthly magazine for home
computing enthusiasts, and Family PC, a magazine specifically targeted to
households with children. ZD Labs, its computer testing facility, enables the
Company to provide reliable and authoritative product evaluations to a
sophisticated audience of brand-specifiers and decision-makers in both the
business and consumer markets. The preeminence of the Company's publications
among readers and advertisers is based on its comprehensive market and product
coverage, the quality of its editorial content and the influence of its
readership.
In 1997, the Company produced over 50 trade shows and conferences worldwide
with over two million estimated attendees. The Company's COMDEX/Fall event is
the number one ranked trade show for all industries in the U.S. as measured by
total revenue, total exhibit space and number of attendees.
The Company's other media and marketing platforms include online content,
market research, education and the publication of computer-related newsletters
and training manuals. In addition, the Company and MAC have developed ZDTV,
the first 24-hour cable television channel and integrated Web site focused
exclusively on computers, technology and the Internet, which is expected to be
launched in the first half of 1998. The Company has an option to purchase ZDTV
from MAC on or before December 31, 1998. See "--Television."
The Company developed certain international consumer and Internet
publications, international trade shows and the ZDNet business under the
ownership of MAC. As a result of the Reorganization, these businesses have
been or will be purchased from MAC. See "The Reorganization."
The Company's Ziff-Davis Media Network integrates the Company's marketing
activities into one cohesive resource for its largest customers. Originally
established to provide discounts for advertisers buying across two or more
magazine titles, the Media Network has been expanded to allow marketers to
reach their various target buyers through any combination of the Company's
media and marketing platforms.
The Company had total revenue of $1.154 billion for 1997. The Company's
revenue is primarily derived from advertising sales, which represented 51.9%
of total revenue in 1997. The second largest component of the Company's
revenue is derived from trade shows and conferences, which accounted for 23.5%
of total revenue in
42
<PAGE>
1997. Circulation revenue, comprised of subscription and newsstand single copy
sales, generated 13.1% of the Company's revenue in 1997 and other revenue
components, including online content, market research and revenue derived from
joint ventures and licenses, contributed 11.5% in 1997.
BUSINESS AND OPERATING STRATEGY
The Company's objective is to be the preferred marketing partner to
technology vendors and service providers seeking to reach primary decision-
makers involved in the specification and purchase of their products and
services. Major elements of the Company's strategy include:
Maintain Focus on the Computer and Internet Technology Markets. The Company
believes that its singular focus on the computer and Internet-related
technology markets provides it with substantial growth opportunities as well
as the ability to broaden its expertise in attracting both audiences and
advertisers.
Develop the Most Comprehensive, Objective and Authoritative Content. The
Company strives to produce the most comprehensive, objective and authoritative
editorial content in order to attract category brand-specifiers and decision-
makers to its media platforms. The ability to provide focused audiences with
their specific information needs attracts the leading advertisers and
exhibitors to the Company's products and services.
Build Upon Brand Strength of Existing Media Properties. The Company will
pursue continued growth from its core portfolio of leading brands, such as PC
Magazine, PC Week, COMDEX and ZDNet, by seeking to expand its market share of
audiences and advertisers and enhancing the quality and accessibility of the
content it produces and marketing services it provides. In addition, the
Company will continue to extend its existing brands into other platforms to
offer multiple media presentations of its content.
Continue to Leverage Multiple Media Marketing Platforms. The Company
believes that the scope and depth of its products and services across multiple
media platforms and geographic territories creates growth opportunities
exceeding those that such businesses could achieve independently. Such
opportunities include the leveraging of strong relationships with accounts in
one media platform into other platforms, cross-marketing Ziff-Davis products
and services to the audiences of its different platforms and packaging
integrated marketing products across all platforms for large advertisers. The
Company believes that its ability to offer clients multiple platform marketing
solutions gives it a competitive advantage over single platform providers.
Expand Leadership on the Internet. The Company intends to use its already
significant presence on the Internet and broad experience in publishing to
continue to reach new audiences and increase advertising revenue. In addition,
the Company believes that the large existing audience for ZDNet and its
affiliated sites, together with its publishing experience, gives it a
competitive advantage in identifying, acquiring and developing new products
and services.
Launch New Products and Services. The Company believes that rapid advances
in technology create additional growth opportunities for the launch of new
products and the expansion of its audiences and advertising base. The Company
seeks to be the first to identify new audiences and develop products and
services which respond to their informational needs. Management believes that
the scope of its operations and its experience in launching new products
across multiple media platforms and geographic regions reduce the risks
typically associated with these activities and enable it to more readily
achieve market acceptance for new products and services as compared to other
media companies.
Expand Global Reach. The Company intends to leverage its widely recognized
brands and its experience in multinational operations to expand further into
key overseas markets, focusing on those markets which have size and growth
characteristics that will support its strategy of cross-media operations.
Management intends to further expand internationally through the launch
overseas of proven U.S. properties, joint ventures and licensing arrangements
with local operating partners and through selective acquisitions.
The Company expects to fund its business and operating strategy from
internally generated cash flow from operations, which are estimated to be
sufficient to fund investments as well as the repayment of indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
43
<PAGE>
PRINT PUBLISHING
The Company is a leading computer-related magazine publisher, with 28
primary U.S. and international titles, including its joint ventures, and over
50 licensed publications, totaling more than 80 publications distributed
worldwide. In 1997, the Company's publications had combined circulation of
over eight million primary readers worldwide. Approximately 62% of the
Company's total revenue in 1997 was attributable to its print publishing
business. Each of the Company's magazines is designed to appeal to a target
audience of sophisticated customers in the business and consumer markets by
providing high-quality editorial content, often supported by independent
laboratory-based product testing. The Company seeks to maintain and increase
its revenue by introducing current advertisers to new titles, by attracting
new advertisers targeted at the Company's readership and by developing new
reader and advertising categories. Each of the Company's primary publications
has established its own Web site as a complementary delivery platform.
The Company believes its preeminent position in the computer publishing
market is based upon its leading brands in key categories, its ability to
successfully develop new brands for emerging product categories, its strength
in circulation and its ability to expand internationally. Ziff-Davis seeks to
produce the highest quality editorial content; it employs top editors and
columnists supported by laboratory-testing facilities that produce widely
acknowledged authoritative benchmarks for determining product quality. See "--
Editorial, Laboratory Testing and Benchmark Software." In addition to its
leading publications targeted at brand-specifiers and other industry
professionals, the Company has successfully introduced new publications
targeted at emerging sectors, including the consumer market (Family PC,
Computer Life and Computer Gaming World), technology lifestyle (Yahoo!
Internet Life) and Internet professionals (Internet Computing and Inter@ctive
Week). The Company's newsstand strategy focuses on developing strong
relationships with a key distributor and large retail accounts. In order to
offer clients coverage of broad international markets, the Company has adopted
a licensing strategy designed to maximize global reach and maintain content
quality in international publications while reducing cost of entry into new
markets. Depending on the characteristics of a particular market, the Company
may choose to own an international publication, enter into a master license
covering one or more titles, or enter into a joint venture if an attractive
local partner can be identified.
The Company's PC Magazine, PC Week and Computer Shopper magazines are the
top three computer magazines in the U.S. and are among the top 25 U.S.
magazines, each as measured by total revenue in 1996 (the latest year for
which data is available). In 1997, Ziff-Davis was the largest technology
publisher in the U.S. in terms of total magazine revenue. In that same year,
Ziff-Davis accounted for 36.8% of all advertising and circulation dollars
spent in computer periodicals, with at least 50% more total magazine revenue
than its closest competitor. In recent years, advertisements in the Company's
publications have expanded beyond those for computer technology products to
include consumer product advertising, reflecting the desirable demographics of
the Company's readership, as well as the expanding readership of computer
technology publications to a broader consumer market.
The Company's publications include paid-circulation magazines, which
generate revenue from newsstand sales, subscriptions and advertising, and
controlled-circulation publications, which are distributed free of charge to
qualified information technology professionals and generate revenue
principally from the sale of advertising. In addition, the readership of
controlled-circulation publications provides valuable demographic information
to the Company. Most of the current Ziff-Davis publications are either monthly
magazines providing comparative, laboratory-based product reviews or news
weeklies providing product and industry news and analysis; however, the
Company also serves the developing market for lifestyle and entertainment
publications focusing on technology.
The Company's U.S. publications have a total circulation of over six million
primary readers, and the Company had a worldwide circulation of over eight
million primary readers. Its six paid-circulation business magazines
(including one joint venture) accounted for 47.2% of the total paid-
circulation of all computer technology business magazines in the U.S. in 1997.
In 1997, PC Magazine's circulation was greater than that of Business Week,
Fortune or Forbes. With respect to newsstand sales, a critical measure of
magazine vitality, in the first six months of 1997 Ziff-Davis accounted for
47.5% of all computer magazine copies sold, and on average Computer Shopper
had greater newsstand sales than Business Week, Fortune and Forbes combined.
44
<PAGE>
The following table sets forth information relating to the Company's primary
publications for 1997.
<TABLE>
<CAPTION>
CIRCULATION
--------------------
PUBLICATION 1997
FIRST FREQUENCY ADVERTISING
PUBLICATION ISSUE TYPE AMOUNT(1) (PER YEAR) PAGES(2)
----------- ----- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
U.S. BUSINESS
PC Magazine........... 1981 Paid 1,176,351 22x 6,261
PC Computing.......... 1988 Paid 1,008,615 12x 2,821
Computer Shopper...... 1979 Paid 561,308 12x 8,590
PC Week............... 1983 Controlled 300,105 51x 7,033
Windows Sources(3)(4). 1993 Paid 400,738 12x 2,108
Internet
Computing(3)(5)...... 1996 Paid 340,579 12x 948
Inter@ctive Week(3)... 1994 Controlled 101,510 45x 1,840
Macworld(6)........... 1985 Paid 671,391 12x 1,734
MacWeek(6)............ 1987 Controlled 97,502 48x 2,593
Sm@rt Reseller(3)..... 1998 Controlled 60,000(7) 12x N/A
U.S. CONSUMER
Computer Life(3)(8)... 1994 Paid 453,078 12x 1,268
Electronic Gaming
Monthly.............. 1988 Paid 358,198 12x 1,221
Yahoo! Internet
Life(3).............. 1995 Paid 325,771 12x 491
Computer Gaming
World(3)............. 1981 Paid 230,772 12x 2,320
EGM/2/................ 1988 Paid 126,310 12x 216
Official U.S.
PlayStation
Magazine(9).......... 1995 Paid 100,000(10) 12x 463
Family PC(3)(11)...... 1994 Paid 382,925 12x 1,343
INTERNATIONAL(3)
PC Professionell
(German)............. 1991 Paid 178,246 12x 1,461
PC Direkt (German).... 1992 Paid 139,229 12x 814
Internet Professionell
(German)............. 1997 Paid 26,665 12x 134
PC Magazine (UK)...... 1992 Paid 130,264 12x 3,054
PC Direct (UK)........ 1992 Paid 124,165 12x 7,432
PC Gaming World (UK).. 1997 Paid 40,385 12x 304
PC Expert (French).... 1992 Paid 98,816 12x 1,203
PC Direct (French).... 1992 Paid 83,097 12x 1,335
PC Week
(China)(12)(13)...... 1996 Controlled 50,000 51x 2,638
PC Computing
(China)(12).......... 1994 Paid 45,580 12x 360
PC Magazine
(China)(12).......... 1994 Paid 45,899 12x 678
</TABLE>
- --------
(1) Based on circulation information provided by the Company to the Audit
Bureau of Circulation for paid publications and BPA International for
controlled publications for the six month period ended December 31, 1997
other than French publications, which are based on information provided
to the Office de la Justication de la Diffusion for the year ended
December 31, 1997, German publications, which are based on information
provided to Informationgemeinschaft zur Feststellungder Verbreiterung Von
Webetragern e.v. for the quarter ended December 31, 1997 and Chinese
publications, which are based on information provided to BPA
International for paid publications for the six month period ended
December 31, 1997.
(2) As reported by AdScope for the year ended December 31, 1997 for domestic
publications and based on Company data for international publications.
(3) Properties which have been or will be acquired from MAC.
(4) To be reformulated and converted into a controlled circulation
publication in the second half of 1998.
(5) Formerly ZD Internet Magazine.
(6) Joint venture with International Data Group, Inc.
(7) 60,000 target rate base for 1998.
(8) To be combined with Equip in the second half of 1998 and called Equip.
(9) Formerly P.S.X.
(10) 100,000 target rate base for 1998.
(11) Joint venture with an affiliate of The Walt Disney Company.
(12) Venture with Richina Media Holdings and other local agencies in China.
(13) Circulation numbers and advertising pages are based on Company data.
45
<PAGE>
ZIFF-DAVIS MEDIA NETWORK
The Company's Ziff-Davis Media Network integrates the Company's marketing
activities into one cohesive resource for its largest customers. Originally
established to provide discounts for advertisers buying across two or more
magazine titles, the Media Network has been expanded to allow marketers to
reach their various target buyers through any combination of the Company's
media and marketing platforms. Currently 21 professionals in the Ziff-Davis
Media Network link major advertisers from one platform into other platforms.
EDITORIAL, LABORATORY TESTING AND BENCHMARK SOFTWARE
The Company has invested heavily in its editorial staff and in training and
technology to develop the high level of technical expertise required to
provide quality content on computer technology. It employs over 450 editorial
personnel worldwide, including award-winning editors and experts in their
fields. The Company believes that it provides its consumers with the most
reliable, objective and focused product evaluations and industry news. Because
of the quality and reputation of Ziff-Davis laboratory tests, the Company's
publications are widely regarded as a reliable source of objective product
evaluations. The Company's influence over computer purchasing carries with it
the responsibility to maintain the highest standards of fairness and
objectivity in its product reviews. To ensure this impartiality, Ziff-Davis
has instituted policies governing separation of editorial functions from
advertising sales functions and restricting trading in securities of
technology-related companies by its journalists.
The Company is committed to laboratory-based product testing as an integral
part of its editorial mission. In 1997, the Company spent over $10 million in
laboratory testing. Testers from many of the Company's different publications
work with the ZD Labs staff to provide comprehensive, objective test results
that can assist readers and users of Ziff-Davis publications and other
content-based services in making buying decisions. In addition to the core ZD
Labs staff, Ziff-Davis publications such as PC Magazine, PC Week, Computer
Shopper and PC Computing maintain their own staff and/or testing space at ZD
Labs as well as at their own locations. The ZD Labs testing facility provides
space for testing hundreds of products and systems. One of its newest
facilities is an Internet/Intranet lab dedicated to testing Web servers and
other Internet products. In its domestic lab facilities, the Company employs
120 technicians, enabling it to test thousands of products each year and
conduct large-scale tests that effectively simulate corporate installations.
The Company believes ZD Labs gives it a competitive advantage in terms of
staffing, equipment and access to the technology necessary to evaluate
products.
ZD Labs produces the core, publicly available and widely distributed
benchmark software that Ziff-Davis publications use worldwide to measure the
performance of PCs, Macintosh systems and servers. The Company's benchmarks
have become industry standards among major buyers of computer and Internet-
related technology.
SOURCES OF PRINT PUBLISHING REVENUE
Advertising Sales. The Company's advertising strategy for its publishing
business is based on helping customers maximize the return on their
advertising investment. Advertising sales accounted for 78.4% of the Company's
total print publishing revenue for 1997. Ziff-Davis has historically invested
in comprehensive research to better understand the computer technology market
and the positions of its different publications. The Ziff-Davis sales
philosophy is to encourage its sales force to adopt the role of marketing
consultant, using Ziff-Davis market research tools, such as the Company's
InternetTrack and BrandTrack services, to provide clients with information on
overall industry trends as opposed to more limited sales presentations
focusing on individual publications. As of December 31, 1997, Ziff-Davis
employed over 250 salespeople, sales managers and sales executives and over
325 sales support staff in its publishing segment to provide customer service,
research, promotional support and value-added programs for advertisers.
Circulation. Ziff-Davis maintains centralized circulation operations which
enable the Company to capitalize on its successful strategies and practices
across all publications on a timely basis. The Company strives
46
<PAGE>
to increase its readership by building relationships with distributors,
retailers and subscribers. Revenue from circulation of the Company's paid-
circulation magazines accounted for 18.4% of the Company's total print
publishing revenue in 1997. This was comprised of subscription sales (10.1% of
total revenue in 1997 and 10.5% in 1996) and newsstand sales (8.1% in each of
1997 and 1996). The Company's publications have a total circulation of over
eight million primary readers worldwide.
The Company's newsstand strategy focuses on developing strong relationships
with a key distributor and large retail accounts. Ziff-Davis recently entered
into a newsstand distribution arrangement in the U.S. with Warner Publishers
Services ("Warner"), a division of Time Warner Inc., which covers the
Company's entire line of paid-circulation magazines. As of January 1998, the
Company became Warner's principal supplier of computer technology
publications. In addition, the Company has preferred distribution arrangements
with large retailers including WalMart, Barnes & Noble, Staples and Office
Max. These arrangements include special magazine displays featuring Ziff-Davis
brand products which increase the prominence of the Company's publications and
strengthen its brand identity. With respect to newsstand sales, a critical
measure of magazine vitality, Ziff-Davis publications accounted for 47.5% of
all computer magazine copies sold in the first six months of 1997.
The Company's subscription strategy is to maintain a highly focused
readership in order to provide the most effective affinity between advertisers
and readers. The Company believes that this strategy increases subscriber
loyalty and renewal rates and allows the Company to provide advertisers with
access to a precisely focused target audience. The Company's six paid-
circulation business magazines (including one joint venture) accounted for
47.2% of the total paid circulation of all computer technology business
magazines in the U.S. in 1996.
Licensing and Joint Ventures. The Company has adopted a licensing strategy
designed to maximize global reach and maintain content quality in
international publications while reducing the cost of entry into new markets.
In markets where the Company believes that the opportunity is significant
relative to the cost of entry, the Company may operate through wholly-owned
publishing companies. Through subsidiaries, the Company currently has
publishing operations in France, the United Kingdom and Germany. In other
markets, the Company has opted to enter into licensing arrangements with local
publishing companies, and currently has over 50 licensed publications
worldwide. The Company's licenses are generally three to five year agreements
that provide for a minimum annual royalty against a percentage of revenue. The
Company also operates through a number of joint venture companies with
partners, including joint ventures with International Data Group, Inc. ("IDG")
and an affiliate of The Walt Disney Company ("Disney") in the U.S. and a
venture with Richina Media Holdings and other local agencies in China. The
Company is currently negotiating with an affiliate of Disney to buy its
interest in the Family PC joint venture.
U.S. PUBLICATIONS
Business Magazines. In the U.S. market, the Company publishes ten computer
publications directed to business buyers, including six paid-circulation
magazines and four controlled-circulation weeklies or bi-weeklies. Each
publication produces authoritative, independent guidance that the Company
believes is generally considered to be the primary product resource in its
market segment. Two of these titles, Macworld and MacWeek, are dedicated to
the Apple Macintosh market and are published by Mac Publishing L.L.C., a joint
venture between the Company and IDG.
PC Magazine provides corporate buyers of computer technology with
comprehensive laboratory-based comparative reviews of PC hardware, software
and networking products, with a focus on technical specifications. With a
paid circulation of more than 1.18 million, PC Magazine is the largest
circulation computer magazine in the world, accounting for 35.4% of all
computer advertising revenue in directly competitive U.S. publications in
1997. PC Magazine has expanded its editorial material into other media,
including a Web publication, PC Magazine Online, and a CD ROM-based
multimedia companion magazine, PC Magazine Extra, which has a paid
circulation of over 75,000. PC Magazine also produces two newsstand-only
specials: Your New PC, which supplies buying advice for less sophisticated
computer buyers, and InternetUser, which focuses on reviews of Internet
products.
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PC Computing provides business users with results-oriented reviews of
computer products, with a focus on productivity and usability. A monthly
publication, it is one of only three computer magazines to have reached a
circulation of over one million readers. PC Computing recently launched
Equip, a quarterly newsstand publication that provides frequent buyers of
consumer electronic products with recommendations on digital electronic
products such as digital phones, DVD players, digital satellite dishes and
camcorders.
Computer Shopper provides readers who buy computer products directly from
manufacturers with buying advice, product evaluations, and technology
coverage, including information on the availability, pricing,
specifications and configurations of thousands of computer products. With a
newsstand circulation of approximately 300,000 in 1997 (the largest
newsstand sales of any computer publication), this monthly publication
sells more pages of advertising than any other computer magazine. Its
interactive Web-based companion, Netbuyer, is one of the leading Web sites
devoted to computer retailing.
PC Week provides enterprise product buyers and information technology
professionals at large corporate computing sites with timely information on
products, companies and general industry news. With a controlled
circulation of over 340,000 distributed to over 180,000 sites, it is the
leading computer weekly. Its online companion, PC Week Online, contains
such innovative features as PC Week Radio.
Windows Sources provides computer professionals responsible for
implementing computing standards within their organizations with detailed
reviews of important Windows 95 and Windows NT products. With an increasing
focus on Windows NT as a critical computing platform, this monthly
publication reached a paid circulation of more than 400,000 in 1997.
Windows Sources will be reformulated in the second half of 1998 and
converted into a controlled circulation magazine.
Internet Computing provides key buyers of Internet and Intranet products
(primarily Web site designers and developers and IS/Intranet managers) with
product buying information, analysis of new technologies and techniques and
tips for creating Web sites. Internet Computing is published monthly and
reached a paid circulation of more than 340,000 in 1997.
Inter@ctive Week provides Internet and telecommunications professionals
with information on relevant business and technology issues, including
products, events, services, strategies, alliances and key players. With a
controlled circulation of over 100,000, Inter@ctive Week became one of the
leading publications for the digital communications technology industry in
less than three years.
Sm@rt Reseller, a bi-weekly launched in January 1998, provides value-
added resellers, system integrators, distributors, Web developers and
Internet service providers with in-depth news and analysis on business and
technology. Sm@rt Reseller currently targets a controlled circulation of
60,000.
Macworld provides Macintosh buyers with comparative, laboratory-based
product evaluations, reviews and information about Macintosh products,
supported by a product testing facility which the Company believes is the
most advanced in the Macintosh industry. Macworld has a qualified
circulation of over 650,000.
MacWeek is targeted at volume buyers of, and purchase influencers for,
Macintosh products at large sites in business, government and education, as
well as buyers at mid-level and smaller businesses, and delivers
information on Macintosh technology, industry trends, news, analysis and
new products. The only weekly Macintosh newspaper, MacWeek had a controlled
circulation of approximately 100,000 recipients in 1997 at nearly 56,000
work locations.
Consumer Magazines. The Company publishes seven magazines that serve the
rapidly growing consumer market and which are dedicated to meeting the varying
needs of computer enthusiasts and net surfers, family buyers and gamers. One
of these titles, Family PC, is published under a joint venture between the
Company and an affiliate of Disney.
Computer Life provides home computing enthusiasts with products, ideas
and techniques designed to help its readers further enrich their personal
computing experience and better integrate computing into all areas of their
lives. Computer Life is a monthly publication with a circulation of over
450,000. Computer Life will be combined with Equip in the second half of
1998 and will be called Equip.
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Electronic Gaming Monthly offers video game enthusiasts news, information
and product reviews about the latest games on ten different game systems.
Written by video gamers for video gamers, this monthly publication has a
primary circulation of more than 350,000. EGM/2/, a companion publication
to Electronic Gaming Monthly with a circulation of more than 125,000,
offers in-depth strategies, exclusive tips and tricks and comprehensive
maps and walk-throughs of the latest games.
Yahoo! Internet Life is the world's leading Internet consumer magazine.
Yahoo! Internet Life reaches a paid circulation of more than 325,000
readers. It is designed to be an entertaining and authoritative print and
online guide to the Internet, targeting an influential, affluent and early-
adopting group of readers. The Company has an exclusive license from Yahoo!
Inc. to use Yahoo! in the title of a print magazine.
Computer Gaming World provides computer game enthusiasts with results-
oriented gaming information. Computer Gaming World serves more than 230,000
game enthusiasts and is both the oldest and one of the largest computer
game publications.
Official U.S. PlayStation Magazine assists Sony PlayStation users in
getting the most out of their PlayStation game consoles by providing up-to-
date news, interviews and insights. This publication has a rate base of
100,000 PlayStation game fans.
Family PC is specifically targeted to households with children. Written
by parents for parents in plain English, its purpose is to help its paid
circulation of 380,000 select the right computers and software for their
families and ensure that they get the most rewarding, productive and
educational experiences from them. It is currently published under a joint
venture with an affiliate of Disney. The Company is currently negotiating
with an affiliate of Disney to buy its interest in Family PC.
INTERNATIONAL PUBLICATIONS
The Company publishes in the United Kingdom PC Magazine, PC Direct and PC
Gaming World and has announced plans to publish IT Week; in Germany PC
Professionell, PC Direkt and Internet Professionell; in France PC Expert and
PC Direct; and in the People's Republic of China PC Week, PC Computing and PC
Magazine through a venture with Richina Media Holdings and local agencies in
China.
PC Magazine (U.K.), PC Expert, PC Professionell, and PC Magazine (China) are
equivalents of PC Magazine (U.S.) adapted to their individual markets.
Similarly, PC Direct (U.K.), PC Direct (France), and PC Direkt are intended to
be equivalents of the Company's U.S. publication, Computer Shopper. Internet
Professionell is based on Internet Computing, while IT Week will be aimed at
information technology professionals and will include material from
Interactive Week, ZDNet News and other U.S. publications in addition to local
content.
PAPER AND PRINTING
Ziff-Davis maintains strong relationships with its paper suppliers and
printing companies. The Company uses five main paper suppliers for the
majority of its printing needs. In general, paper supply contracts are two to
three year agreements, with quarterly pricing adjustments, and are renewable
on a staggered basis. Most agreements contain pricing clauses that seek to
ensure the most competitive pricing on a quarter to quarter basis. The
Company's main paper suppliers for its U.S. publications are Bowater,
Champion, Consolidated, Fraser and UPM, which provided 12%, 33%, 15%, 12% and
12%, respectively, of the Company's paper supply in 1997 as measured by
tonnage. Printing companies that the Company has relationships with include
R.R. Donnelley, Brown, Quadgraphics and Quebecor. Approximately 50% of the
Company's total printing expenditures for its U.S. publications are with R.R.
Donnelley, which has a number of alternative printing sites. Printing
contracts are generally two to three year agreements.
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TRADE SHOWS AND CONFERENCES
The Company is the leading producer of trade shows, conferences and
customized marketing and educational programs for the computer industry in the
U.S. Approximately 25% of the Company's total revenue in 1997 was attributable
to its trade show and conference business which includes the industry-wide
COMDEX events, other trade shows and conferences focused on specific segments
of the computer technology industry, and customized events designed to meet
the marketing needs of specific clients. In 1997, the Company produced over 50
trade shows and conferences, 18 of which were held in North America.
The COMDEX/Fall event has been held for 18 years and is the number one
ranked trade show for all industries in the U.S. as measured by total revenue,
total exhibit space and number of attendees. In 1997, the Company estimates
that over two million people attended Company trade shows and conferences
worldwide. In addition to COMDEX/Fall, held annually in Las Vegas, the Company
produces 18 other COMDEX events in 13 countries.
"NetWorld+Interop" ("N+I") and "Seybold Seminars" are segment-focused
Company trade shows. In 1997, nine such shows were held in six countries. The
N+I trade shows focus on the networking/interconnectivity segment of the
computer industry, while the Seybold Seminars focus on publishing and graphic
communications. In addition, the Company will produce the following segment-
focused trade shows in 1998: (i) WINDOWS WORLD in conjunction with Microsoft
Corporation; (ii) EXPO COMM, servicing the worldwide telecommunications
industry; (iii) CommUnity, for the emerging corporate integrated data, voice
and video segments; (iv) COMDEX/Enterprise, focusing on solutions for the
large corporate information technology infrastructures; (v) Java Internet
Business Expo, sponsored by Sun Microsystems, Inc. and focusing on the full
range of Java technology for information technology professionals; (vi)
Service and Support Expo, focusing on technology for help desk and information
technology support services; and (vii) Learning Technology, focusing on
applying technology to education and training. The Company's customized
conferences are designed to meet the marketing needs of a specific client. For
example, the Company produced the Java One series of conferences for Sun
Microsystems, Inc. which were designed to introduce Java software to the
developer community.
Attendees at the Company's trade shows and conferences cover a wide range of
participants from the computer industry, including manufacturers,
distributors, dealers, retailers, value-added and other resellers and large
corporate end-users. Each event includes an extensive conference program,
which provides a forum for the exchange and dissemination of information
germane to the particular event's focus. In addition, each event has one or
more "keynote" sessions with speakers drawn from computer industry leaders.
The Company estimates that in 1997 over 5,000 companies participated as
exhibitors in its trade shows and conferences and over 8,000 industry experts,
analysts and consultants spoke at its conference programs.
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The following table sets forth information relating to the Company's
principal trade shows and conferences, including joint ventures, for 1997.
Substantially all of the Company's international COMDEX events are joint
ventures and substantially all N+I events are owned by the Company.
<TABLE>
<CAPTION>
1997 ACTUAL
-------------------------------------
TOTAL NET ESTIMATED
LAUNCH SQUARE TOTAL TOTAL
YEAR FOOTAGE EXHIBITORS ATTENDEES
------ --------- ---------- ---------
<S> <C> <C> <C> <C>
EVENT
NORTH AMERICA
COMDEX/Fall.............................. 1979 1,362,400 1,750 200,000
COMDEX/Spring, WINDOWS WORLD & EXPO COMM
USA..................................... 1981 267,900 615 100,000
COMDEX/Canada incl. WINDOWS WORLD
and Connected Computing................. 1992 164,200 401 59,000
COMDEX/PacRim............................ 1995 79,000 239 33,000
COMDEX/Quebec............................ 1996 47,900 162 28,000
COMDEX/Miami & EXPO COMM Miami........... 1996 85,300 339 23,000
NetWorld+Interop & CommUnity Las Vegas... 1986 407,400 662 56,000
NetWorld+Interop & CommUnity Atlanta..... 1992 366,681 620 44,000
Seybold San Francisco Publishing......... 1986 141,900 315 38,000
Seybold Seminars East (New York)(1)...... 1982 107,000 271 23,000
Windows NT Intranet Solutions (WINTIS)
San Francisco........................... 1993 53,400 275 23,000
INTERNATIONAL
COMDEX/SUCESU-SP Brazil.................. 1992 358,900 455 128,000
COMDEX/Rio............................... 1994 105,400 214 90,000
COMDEX & WINDOWS WORLD Mexico(2)......... 1993 90,100 240 48,000
COMDEX/INFOCOM & WINDOWS WORLD Argentina. 1997 94,200 192 38,000
COMDEX IT France......................... 1997 180,800 466 50,000
COMDEX & Object World UK(2).............. 1996 52,020 209 21,000
COMDEX/Japan & Object World Tokyo(3)..... 1996 114,600 222 80,000
COMDEX/China............................. 1996 59,900 157 82,000
COMDEX/Korea............................. 1997 90,200 150 45,000
COMDEX/Asia at Singapore Informatics..... 1995 57,500 146 40,000
COMDEX/IT INDIA.......................... 1996 144,300 253 60,000
NetWorld+Interop Paris................... 1992 163,267 350 38,000
NetWorld+Interop Tokyo(3)................ 1993 187,600 287 91,000
Seybold Seminars Tokyo(3)................ 1996 24,600 53 28,000
Windows NT Intranet Solutions Japan(3)... 1994 77,500 176 46,000
</TABLE>
- --------
(1) Properties which have been or will be acquired from MAC.
(2) These international COMDEX events are wholly-owned by the Company.
(3) Trade shows in Japan are owned by Softbank and managed by the Company.
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SOURCES OF TRADE SHOW AND CONFERENCE REVENUE
In 1997, exhibitor space fees accounted for 64.8% of the Company's total
trade show and conference revenue. The Company believes most trade show
producers receive virtually all of their revenue from the sale of exhibitor
space fees. The Company has actively sought to increase its revenue from other
sources, including attendee fees, which accounted for 35.2% of all trade show
and conference revenue in 1997.
At each trade show, all exhibitors pay the same price per square foot of
booth space, regardless of the exhibit hall they select or the location or
size of their booth within a given hall. Typically, a majority of each trade
show's exhibitors commit to booth space during that year's show for the next
year's show. The Company encourages this commitment through a booth selection
procedure that grants priority based upon a seniority system. Annual renewal
is required for exhibitors to maintain their seniority. Exhibitors pay for
space in two or three installments, the last of which is usually due six
months prior to the upcoming event.
In 1997, attendee fees accounted for 14.9% of the Company's trade show and
conference revenue, primarily from N+I and Seybold events. Most COMDEX
attendees come as the invited guests of exhibiting companies. The Company
provides exhibiting companies with a supply of complimentary admission
tickets, which are generally given to customers and key prospects. This helps
exhibitors ensure that their best customers and prospects will attend.
The Company's trade show and conference advertising revenue is derived
principally from five products: (i) a daily newspaper distributed during the
show; (ii) the Program Exhibits Guide; (iii) the Preview, a newspaper
published and distributed to pre-registrants and certain prior year attendees
in advance of the show; (iv) advertising billboards and banners; and (v)
ancillary exhibitor logo products which are sold to exhibitors to increase
booth traffic and name recognition.
The Company also maintains a continuously updated database containing the
names and certain demographic information on its over two million attendees.
This database is rented to direct mail users on a fee-per-use basis.
COMDEX
COMDEX trade shows cover a broad range of new technologies at every stage in
their development and evolution--from introduction to commercial maturity.
Many of the most significant computer product launches over the past 18 years
occurred at COMDEX, including the launch of the IBM PC, Lotus 1-2-3, Windows
3.1 and DVD.
COMDEX/Fall is a five-day trade show held annually in November in Las Vegas.
In 1997 COMDEX/Fall had over 1,750 exhibiting companies occupying more than
1,350,000 net square feet of exhibit space and more than 200,000 attendees.
COMDEX/Spring, which was launched in 1981, is a smaller version of the fall
event. In 1997, it was held in Atlanta and had more than 600 exhibiting
companies and over 100,000 attendees. In April 1998, COMDEX/Spring will be
held in Chicago. For the last six years, the Company, in cooperation with
Microsoft Corporation, has produced a WINDOWS WORLD trade show concurrently
with COMDEX/Spring.
In 1993, the Company began launching additional COMDEX events in order to
capitalize on the international recognition of the COMDEX brand name. The 1998
schedule includes other COMDEX events in Miami, Toronto, Vancouver, Montreal,
Mexico City, Monterrey (Mexico), Buenos Aires, Sao Paulo, Rio de Janeiro,
London, Paris, Tokyo, Seoul, New Delhi, Beijing, Singapore and Cairo.
NETWORLD + INTEROP
N+I is the largest of the Company's segment-focused trade shows and is the
leading show for professionals in the rapidly growing field of computer
networking. N+I places strong emphasis on the quality of its conference
programs and, in recent years, has become a leading educational forum for the
Internet and enterprise computing
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communities. The largest N+I event is held annually in Las Vegas in May. Each
N+I trade show features InteropNet, a live, multi-platform network that
interconnects exhibitors to one another and to the Internet. In 1997, the N+I
Las Vegas event had over 600 exhibiting companies occupying more than 400,000
net square feet of exhibit space and more than 55,000 attendees. The N+I
Atlanta event, held in October each year, is only slightly smaller in all
categories. The 1998 schedule of N+I events includes seven shows in six
countries.
SEYBOLD SEMINARS
The Company's Seybold Seminars are segment-focused trade shows and are a
leading information and education provider for traditional and new media
publishing industries. These shows focus on the latest technologies and
products, design tools and desktop applications. The largest of the Seybold
series is held annually each September in San Francisco. In 1997, this Seybold
show had over 300 exhibiting companies occupying more than 140,000 net square
feet of exhibit space and more than 38,000 attendees. Other Seybold events are
held in New York and Tokyo.
OTHER EVENTS
The Company also produces EXPO COMM, a series of worldwide trade shows
focusing on the telecommunications, wireless and telephony segments of the
information technology marketplace. The Company purchased a 50% interest in
the series from EXPO COMM's founder, E.J. Krause & Associates, Inc., in 1996.
EXPO COMM events are held in Chicago, Moscow, Beijing, Buenos Aires, Sao
Paulo, Mexico City, Monterrey (Mexico) and Tokyo. WINDOWS WORLD trade shows
are held in cooperation with Microsoft Corporation concurrently with the
Company's COMDEX events in Chicago, Mexico City and Toronto. These events
showcase the latest Windows-based applications and solutions.
The Company also produces Learning Technology trade shows for professionals
focused on learning and helping others to learn to use technology, held in
Atlanta and Los Angeles, and Object World trade shows focused on the
commercial and practical aspects of applying object technology and distributed
computing in today's business environment, held in San Francisco, Boston,
London, Frankfurt and Tokyo.
INTERNET
The Company maintains a number of Web sites related to its publications,
trade shows and conferences and other media platforms. The Company's ZDNet.com
Web site is the leading computing content site and the number one Web site in
the category of news, information and entertainment, in each case as measured
by visitors per month in 1997, ranking it higher than Web sites produced by
Time Warner Inc. (Pathfinder.com), Disney (Disney.com) and ESPN
(Sportzone.com). The Company estimates that the ZDNet Web site serves more
than 100 million pages each month to more than five million visitors. It has
over one million registered users and over 2.5 million e-mail recipients per
month. ZDNet has successfully attracted new audiences in addition to
established computer enthusiasts, as is evidenced by the fact that 64% of
ZDNet users do not regularly read any computer technology publications. ZDNet
seeks to be the most comprehensive site for quality content about computing.
ZDNet has its own staff of over 100 editors, designers and technology
experts who create and develop a wide range of content, including current and
in-depth news, product reviews, investor information, shareware library,
online shopping, training, forums and chat areas. ZDNet coordinates and
collaborates on content development with the Company's other publications and
businesses and is fully integrated with the Company's individual Web sites.
ZDNet includes Netbuyer, a leading Web site devoted to computer retailing.
Softbank is a majority owner of Gamespot, a leading Web site for gaming
information, including reviews, demo downloads and other content. Softbank's
interest in Gamespot will be contributed to the Company concurrently with the
Reorganization. Over 80% of the content on ZDNet is original, with the
remainder supplied by the Company's print publications.
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The Company has a number of arrangements with leading Web sites and product
manufacturers to increase traffic and thereby advertising revenue to ZDNet.
ZDNet is the preferred computer and technology content-provider for leading
Internet sites and products, including Yahoo!, Excite, MSNBC and Pointcast, as
well as for leading Internet service providers such as Mindspring and AT&T's
World Net, each of which provides a direct link to ZDNet. ZDNet also has
arrangements with original equipment manufacturers, such as Compaq Computer
Corp. and Gateway 2000, Inc., whereby ZDNet is an automatic bookmark in the
Web browsers included on such computers.
The Company distributes localized versions of ZDNet in Germany as ZDNet
Deutschland, in France as ZDNet France and in the United Kingdom as ZDNet UK.
Localized versions of ZDNet are also distributed by licensees in Italy,
Russia, Japan, China, Taiwan, Australia and Latin America.
TELEVISION
In order to expand its media platforms, the Company has entered into a
license and services agreement with MAC to develop ZDTV, which is expected to
be launched in the first half of 1998. ZDTV will be the first 24-hour cable
television channel and integrated Web site focused exclusively on computers,
technology and the Internet. ZDTV will target a wide range of viewers,
including computer and technology enthusiasts, computer gaming enthusiasts,
business people, teens, families and other viewers with a sustained interest
in computers, technology and the Internet. Programs are expected to include
educational features, product evaluations, gaming tips and strategies, current
events and other entertainment. ZDTV will also feature live interactive
programming allowing viewers to participate through simultaneous Web
programming on ZDTV.com.
ZDTV is indirectly owned by MAC, but as part of the license and services
agreement, MAC has granted the Company an option exercisable through December
31, 1998 to purchase all of MAC's interest in ZDTV for an amount equal to
MAC's investment plus 10.0% per annum for the period of its investment.
Pursuant to the licence and services agreement, the Company has agreed to fund
ZDTV's operations on behalf of MAC through unsecured advances which, for
approved levels of expenditure, are to be reimbursed by MAC. Such advances
bear interest at the 30-day LIBOR rate plus .50%. ZDTV's cash requirements are
expected to be approximately $54 million in 1998. The Company's cumulative
advances in respect of ZDTV, which totaled approximately $14.4 million net of
$10.1 million in repayments through December 31, 1997, will be repaid
concurrently with the Reorganization. The Company has not yet determined
whether it will exercise its option to purchase MAC's interest in ZDTV. Any
such purchase will depend upon access to sufficient cable carriage, which may
include entering into a joint venture or other co-ownership arrangement,
including an arrangement with a third party cable system operator which will
provide carriage and also assume a portion of the ongoing cash requirements on
terms that are acceptable to the Company. ZDTV is not included in the
Company's results of operations. See "Certain Transactions."
ZD Television Productions, which is also indirectly owned by MAC, creates
customized programming for ZDTV and third parties. The Company's option to
purchase ZDTV from MAC also includes the option to purchase ZD Television
Productions. Its productions have included the regional Emmy award-winning
"The Site" with MSNBC and "21st Century Home" with Home & Garden Television.
See "Certain Transactions."
EDUCATION
The Company is an independent publisher of computer training products and
services for end-users and advanced technology professionals. Its products and
services include Internet-based training, computer-based training, instructor-
led courseware and customization tools. The Company believes that its
education offerings extend the Company's reach and brand reputation while
permitting the Company to attract and retain customers.
The Company is a source of software-specific newsletters and technology
information, with more than 50 titles, a family of CD-ROM products and an
interactive Web site. Generally published monthly, the titles include time-
saving tips and techniques on products such as Windows 95, Novel NetWare,
Visual Basic, Word, Excel, Microsoft Office, PhotoShop and Windows NT, in
addition to several programming and operating systems journals. The Company's
informational Web site provides instant access to a library of back issues,
reviews, online links and chats with authors.
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Through ZD University, an Internet-based educational program, the Company
provided training to more than 37,000 paid subscribers in 1997, an increase of
100% from 1996. The ZD University Web site is closely integrated with ZDNet,
helping to ensure that customers of one service are exposed to other Company
services.
Through the Help Desk Institute and the Support Services Professionals
Association, the Company provides training programs and publications for
hardware and software support service professionals. The Company also
publishes Inside Technology Training, which reaches 40,000 information
technology and training managers, and other software support professionals. In
addition, the Company owns and operates a single-site training center that
specializes in applications, programming and certification training for
Microsoft, Novell and Lotus, and the Training Center Alliance, which provides
qualifying training center customers with enhanced marketing support and
referral capabilities worldwide.
MARKET RESEARCH
The Company's market research division develops, analyzes and compiles a
wide variety of information on computer technology issues ranging from
technical aspects of current usage to trends in decision making. The Computer
Intelligence ("CI") unit focuses on information concerning installed and
planned technology hardware and software purchases, and is a leading source in
North America and Europe of fact-based information concerning hardware and
software needs for the computer and communications industries. CI is an
important part of the Company's effort to be a single source marketing
solution, as it can provide the Company's marketing customers with important
information to identify their target customers. CI's databases are built from
more than 30,000 telephone interviews per month and contain data on installed
and planned computer and communications products and services at over 400,000
business sites in the U.S., Canada and eight European countries, according to
Company estimates. CI assists the Company's clients in identifying and
targeting their customers by tracking current activity and market share in the
business, home and reseller channels. Customers use CI's services to make
important marketing decisions.
The Company also identifies and analyzes trends in the decision making
process for consumers of computer technology. This type of information helps
to identify criteria other than technical product specifications that are used
in product selection. The Company's market research division also consolidates
information obtained in each of the databases maintained by the Company's
other operating divisions, so that each Ziff-Davis division can offer the
Company's clients a wide range of information to meet their marketing needs
across multiple platforms.
The Company publishes Microprocessor Report, a leading technical publication
for the microprocessor industry. It also produces Microprocessor Forum, the
industry's leading conference for the introduction of new high-performance
microprocessors, and PC Tech Forum, events which together attract more than
1,000 paid attendees and provide information on trends and markets.
COMPETITION
The Company competes with a wide range of companies for each of the products
and services it provides. Although such competition is significant and is
likely to increase in the future, the Company believes it has a greater
breadth of product and service offerings than any of its competitors.
The magazine publishing business is highly competitive. The Company faces
broad competition, not only from other technology publishers, but from other
media companies as well, including business, news and general interest
magazine publishers. Other principal computer and technology publishers in the
United States include IDG, CMP Media Inc., The McGraw-Hill Companies and
Imagine Publishing, each of which produces publications that directly compete
with one or more of the Company's publications. The Company also competes with
various computer and technology publishers in the international markets in
which it conducts business. A
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publishing company's success depends upon a number of factors, such as
editorial quality, product positioning and price. Competitive factors for
advertising sales include quality of readership, circulation, reader response
and advertising rates. The Company believes its publications effectively
compete in the marketplace on the basis of each of these factors.
The Company also faces competition in its trade show and conference
business, primarily from several significant trade show management companies.
These include Miller Freeman, Mecklermedia Corporation and IDG. The Company
believes its trade shows compete in the marketplace on the basis of quality of
conference content, organizational efficiency, and quality and number of
exhibitors and attendees.
The Internet media business is highly competitive. An increasing number of
companies are developing online content and services for delivery on the World
Wide Web in order to compete for audiences and the advertising dollars that
are currently being directed to the Internet. ZDNet competes with other
technology-related online content sites such as c|net, CMPnet, and IDGnet.
The Company's market research division faces competition from numerous
market research companies, including International Data Corporation, Gartner
Group's Dataquest and IntelliQuest. Database providers such as Information
Resource Group and Dun & Bradstreet provide additional competition.
The Company's education division competes with a variety of education
providers, including vendor-supplied training materials and traditional
classroom-based computer training.
ZDTV is expected to be the first 24-hour cable television channel and
integrated Web site focused on computer technology and the Internet, and as
such it is not expected to face direct competition in the near future. It
will, however, face competition from a variety of general and special interest
television programs. The market for television programming is highly
competitive, with many programming producers competing both for channel
carriage and for advertiser and audience market share.
TRADEMARKS
The Company has developed strong brand awareness for its principal
publications, trade shows and other products and services. Accordingly, the
Company considers its trademarks, copyrights, trade secrets and similar
intellectual property as critical to its success and relies on trademark,
copyright and trade secrets laws, as well as licensing and confidentiality
agreements, to protect its intellectual property rights. The Company generally
registers its material trademarks in the United States and in certain other
key countries in which these trademarks are used. Effective trademark,
copyright and trade secret protection may not be available in every country in
which the Company's publications and services are available.
The Company may be subject to claims of alleged infringement by it or its
licensees of trademarks and other intellectual property rights of third
parties from time to time in the ordinary course of business. The Company does
not believe there are any such legal proceedings or claims that are likely to
have, individually or in the aggregate, a material adverse effect on the
Company's business, financial condition or results of operations.
FACILITIES
The Company's world headquarters are located in New York and the Company has
over 50 editorial, production and sales offices and computer labs in many
other cities in the United States and around the world. The Company's other
principal offices are located in the Boston and San Francisco metropolitan
areas. The Company does not own real property that is material to its business
and leases all but one of its offices from third parties. The Company believes
that its properties, taken as a whole, are in good operating condition and are
suitable and adequate for the Company's current business operations, and that
suitable additional or alternative space, including space available under
lease options, will be available at commercially reasonable terms for future
expansion.
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EMPLOYEES
As of December 31, 1997, the Company had a total of 3,698 employees. Of
these employees, 1,160 were engaged in U.S. magazine publishing activities,
350 in international publishing activities, 728 in trade shows and
conferences, 197 in Internet-related activities, 414 in education activities,
486 in market research and 363 in central administrative services. None of the
Company's U.S. employees is represented by a labor union. The Company
considers its relationships with its employees to be satisfactory.
LEGAL PROCEEDINGS
The Company has been named as a defendant in an action, filed on April 17,
1998, in the Supreme Court of the State of New York, by minority shareholders
of SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect
subsidiary of Softbank. The complaint alleges, among other things, that SBH,
SIM's majority shareholder, acting with the Company and two of its senior
officers and directors who were directors of SIM (and who are also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in the Company) and failed to act in the
best interests of SIM and the minority shareholders by taking actions which
benefitted the Company. The complaint states claims based on common law fraud,
breach of fiduciary duty and aiding and abetting theories and seeks in excess
of $200 million in damages. The investment in SIM was solely by SBH, which
intends a vigorous defense on behalf of itself and the Company.
There are no other legal proceedings to which the Company is a party, other
than ordinary routine litigation incidental to the business of the Company
which is not otherwise material to the business or financial condition of the
Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are set forth in the
table below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Masayoshi Son.................... 40 Director
Yoshitaka Kitao.................. 47 Director
Ronald D. Fisher................. 50 Director
Chairman, Chief Executive Officer,
Eric Hippeau..................... 46 Director
Jason E. Chudnofsky.............. 54 President and Chief Executive
Officer, ZDCF, Director
Timothy C. O'Brien............... 49 Chief Financial Officer, Director
Claude P. Sheer.................. 47 President, ZD Publishing, Director
Robert G. Brown.................. 51 President, ZD Market Intelligence
Terri S. Holbrooke............... 41 President, ZD Brand and Marketing
Senior Vice President, General
J. Malcolm Morris................ 55 Counsel
Senior Vice President, Development
Daryl R. Otte.................... 36 and Planning
Daniel L. Rosensweig............. 36 President, ZD Internet Productions
William A. Rosenthal............. 37 President, ZD Education
Thomas L. Wright................. 38 Vice President, Treasurer
Jonathan D. Lazarus.............. 47 Director
Jerry C.-Y. Yang................. 29 Director
</TABLE>
The Company will nominate for election one additional independent director
as soon as practicable after consummation of the Offerings. See "--Board
Composition."
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
Masayoshi Son. Masayoshi Son has been President and Chief Executive Officer
of SOFTBANK Corp. since 1981. Mr. Son has been President and Chief Executive
Officer of Mediabank Corporation since 1994 and GeoCities Japan Corporation
since 1997 and was President and Chief Executive Officer of Japan Sky
Broadcasting Co. Ltd. from 1996 to 1998 and SB Networks Corporation from 1997
to 1998. In addition, Mr. Son is currently a Director of each of PASONABANK
Inc. and Yahoo! Japan Corporation and a Representative Director of each of MIC
Inc., Son Kosan Ltd. and MAC.
Yoshitaka Kitao. Yoshitaka Kitao has been Executive Vice President and Chief
Financial Officer of SOFTBANK Corp. since 1995. Mr. Kitao has been President
and Chief Executive Officer of SoftVenture Capital Inc. since 1996, SOFTBANK
Ventures Inc. since 1996 and SOFTBANK Contents Partners Corporation since
1997. Since 1997 Mr. Kitao has been President of Cybercash K.K. and a Director
of Trendmicro Inc. Previously, Mr. Kitao served as Director of Nomura
Wasserstein Perella Co., Ltd. from 1992 to 1993, Managing Director of
Wasserstein Perella & Co., Inc. from 1989 to 1992 and was the General Manager
for The Nomura Securities Co., Ltd.'s Corporate Finance and Services Dept. 3
from 1992 to 1995.
Ronald D. Fisher. Ronald D. Fisher has been the Vice Chairman of SOFTBANK
Holdings Inc. since 1995. From 1990 to 1995, Mr. Fisher was the Chief
Executive Officer of Phoenix Technologies Ltd, a leading developer and
marketer of system software for personal computers. From 1984 through 1989,
Mr. Fisher was the President of Interactive Systems Corporation. His prior
experience includes senior management positions at VisiCorp, TRW and ICL
(USA). In addition to being a Board member of SOFTBANK Corp., Mr. Fisher
serves on the Boards of Phoenix Technologies Ltd, Microtouch Systems Inc. and
Segue Software Inc.
Eric Hippeau. Eric Hippeau has been Chairman and Chief Executive Officer of
ZDI since 1993. He joined ZDI in 1989 as Publisher of PC Magazine, was named
Executive Vice President of ZDI in 1990, and President and Chief Operating
Officer in February 1991. Prior to joining ZDI, Mr. Hippeau held a number of
positions with IDG, including Vice President of computer publications in Latin
America and Publisher of IDG's InfoWorld magazine. Mr. Hippeau is currently a
Director of Yahoo! Inc.
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Jason E. Chudnofsky. Jason E. Chudnofsky has been President and Chief
Executive Officer of ZDCF since October 1997. From 1988 to 1997, Mr.
Chudnofsky was President of the Trade Show Division of The Interface Group
which was renamed SOFTBANK COMDEX when that division was acquired by Softbank
in 1995. In addition, Mr. Chudnofsky served as President and Chief Executive
Officer of the Sands Expo and Convention Center Division from 1990 to 1995.
Mr. Chudnofsky has over 15 years of experience in the exposition, trade show
and conference industry.
Timothy C. O'Brien. Timothy C. O'Brien has been Vice President and Chief
Financial Officer of ZDI since 1995. From 1985 to 1994, Mr. O'Brien was Chief
Financial Officer of Reed Elsevier Inc. and Reed Publishing USA. From 1992 to
1994, he was also Executive Vice President of Cahners Publishing Company which
he joined in 1980. From 1970 to 1980, Mr. O'Brien was employed by Price
Waterhouse LLP.
Claude P. Sheer. Claude P. Sheer has been President of the ZD Publishing
Division of ZDI since December 1997, having served in 1997 as President of
U.S. Publications of ZDI and in 1996 as President of the Business Media Group.
Since joining ZDI in 1980, Mr. Sheer has served in a number of positions
including Publisher of PC Week and Group Vice President of Controlled
Circulation Publications.
Robert G. Brown. Robert G. Brown has been President of ZD Market
Intelligence since 1993. He joined Ziff-Davis in 1992 as Vice President of
Market Development. Prior to that time, from March 1988 to July 1992,
Mr. Brown was founder and President of R.G. Brown & Associates, a direct
marketing and management consulting company working with computer hardware and
software companies. Mr. Brown was previously President of Quadram, a unit of
Intelligent Systems, L.P., which manufactured and sold peripheral products to
PC users.
Terri S. Holbrooke. Terri S. Holbrooke has been President of ZD Brand &
Market Services since July 1997. From October 1996 to July 1997, Ms. Holbrooke
was Senior Vice President of Marketing for ZDI. From January 1996 to October
1996, Ms. Holbrooke was Vice President of SOFTBANK Exposition and Conference
Company. From 1986 to 1995, Ms. Holbrooke held several executive marketing
positions at Novell Inc., including head of Worldwide Marketing Communications
and Vice President of Strategic Planning.
J. Malcolm Morris. J. Malcolm Morris has been Senior Vice President, General
Counsel of ZDI since January 1998, having previously served as Vice President,
General Counsel since 1990. Mr. Morris joined ZDI in 1980 as Assistant General
Counsel. Prior to joining ZDI, Mr. Morris was engaged in the practice of law
at the New York firm of Cleary, Gottlieb, Steen & Hamilton.
Daryl R. Otte. Daryl R. Otte has been Senior Vice President of Development
and Planning for ZDI since 1997. From 1995 to 1997, Mr. Otte was Vice
President of Planning. From 1989 to 1995, Mr. Otte held various corporate
finance and planning positions at Reed Elsevier Inc., and its predecessors,
including Vice President of Planning, Cahners Publishing Company, and
Assistant to the Chief Financial Officer of Reed Publishing USA.
Daniel L. Rosensweig. Daniel L. Rosensweig has been President of ZD Internet
Productions since 1997, having served in 1996 and 1997 as Executive Vice
President of ZDI's Internet Publishing Group. From 1995 to 1996, Mr.
Rosensweig was Vice President and Publisher of PC Magazine, and, from 1994 to
1995, was Publisher of PC Magazine. Since joining ZDI in 1983, Mr. Rosensweig
held a number of positions, including Associate Publisher positions at
PC Magazine, Computer Shopper and PC Sources.
William A. Rosenthal. William A. Rosenthal has been President of ZD
Education since 1997 having served as President of ZDI's Logical Operations
division in 1996 and 1997. From 1993 to 1996, Mr. Rosenthal was the General
Manager for ZDI's Logical Operations division and from 1987 to 1993 was
Vice President of Sales and Marketing for that division.
59
<PAGE>
Thomas L. Wright. Thomas L. Wright has been Treasurer of ZDI since 1995 and
has been Vice President and Treasurer of SOFTBANK Holdings Inc. since 1996.
Prior to joining ZDI, Mr. Wright held various positions from 1986 to 1995 at
Reliance Group Holdings, Inc., most recently as Vice President and Assistant
Treasurer.
Jonathan D. Lazarus. Jonathan D. Lazarus was with Microsoft Corporation from
1985 through 1996, serving most recently as Vice President, Strategic
Relations. Mr. Lazarus serves on the Boards of ELEKOM Corp., Liquid Audio,
NetGravity, Vision Solutions and National Association of Television Program
Executives. Mr. Lazarus is also an advisor to Microsoft Corporation, the
Universal Studios New Media Group and ZDTV.
Jerry C.-Y. Yang. Jerry Yang co-founded Yahoo! Inc. in 1995 and has served
as an officer and a member of the Board of Directors of Yahoo! Inc. since
March 1995. Mr. Yang co-developed Yahoo! Inc. in 1994 while he was working
towards his Ph.D. in electrical engineering at Stanford University.
BOARD COMPOSITION
Following the Offering, the Board of Directors will consist of ten members,
which will include the nine current members of the Board plus one additional
"independent director" (within the meaning of the regulations of the New York
Stock Exchange (the "NYSE")) nominated for election by the Board of Directors.
It is expected that the new director will be elected by the Board within three
months following the closing of the Offering. Directors of the Company are
currently elected annually by its stockholders to serve during the ensuing
year or until their respective successors are duly elected and qualified.
Following the Offering, the Board of Directors will be divided into three
classes each of whose members will serve for a staggered three-year term. Upon
the expiration of the term of a class of directors, directors in such class
will be elected for three-year terms at the annual meeting of stockholders in
the year in which such term expires. See "Description of Capital Stock--
Certain Provisions of the Certificate of Incorporation and By-laws."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has two committees: an Audit Committee and
a Compensation Committee.
The Audit Committee will be comprised of the independent directors. The
Audit Committee reviews and recommends to the Board, as it deems necessary,
the internal accounting and financial controls for the Company and the
accounting principles and auditing practices and procedures to be employed in
preparation and review of financial statements of the Company. The Audit
Committee makes recommendations to the Board concerning the engagement of
independent public accountants and the scope of the audit to be undertaken by
such accountants. Price Waterhouse LLP presently serves as the independent
accountants of the Company.
The Compensation Committee is currently comprised of Mr. Fisher, who,
following the Offering, will be joined by the two independent directors. The
Committee reviews and, as it deems appropriate, recommends to the Board
policies, practices and procedures relating to the compensation of the
officers and other managerial employees and the establishment and
administration of employee benefit plans. The Committee exercises all
authority under any employee stock option plans of the Company as the
Committee therein specifies (unless the Board resolution appoints any other
committee to exercise such authority), and advises and consults with the
officers of the Company as may be requested regarding managerial personnel
policies. The Committee will have such additional powers and be granted
additional authority as may be conferred upon it from time to time by the
Board.
COMPENSATION OF DIRECTORS
Directors who are not executive officers or employees of the Company or
Softbank will receive an annual retainer of $25,000 for Board of Directors
service and a fee of $2,000 for each meeting of the Board of Directors or any
committee thereof attended.
The Company has adopted the 1998 Non-Employee Directors Stock Option Plan
(the "Non-Employee Directors Plan"). Directors of the Company who are not
employees of the Company or any of its subsidiaries ("Non-Employee Directors")
will automatically participate in the Non-Employee Directors Plan.
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<PAGE>
Pursuant to the 1998 Non-Employee Directors Plan, each Non-Employee Director
shall receive upon election as a member of the Board an initial grant of stock
options to purchase 15,000 shares of Common Stock; provided, that each Non-
Employee Director who is on the Board of Directors on the date of the Offering
shall receive such initial grant of stock options on the date of the Offering.
Each Non-Employee Director shall automatically receive on each annual meeting
thereafter an annual grant of stock options to purchase 7,500 additional
shares of Common Stock. The terms of each stock option granted to a Non-
Employee Director shall provide that (i) the option price shall be equal to
100% of the fair market value (as defined in the 1998 Incentive Compensation
Plan) of the Common Stock on the date of grant, (ii) such option shall be
exercisable for a period of ten years following the date of grant, and (iii)
such option shall vest and become exercisable in five equal installments
beginning on the first anniversary of the date of grant.
Upon ceasing to be a Non-Employee Director, such option shall terminate
except with respect to any portion of such option then exercisable, which
portion shall remain exercisable for a period of (x) 90 days, if the
termination as Director resulted from any reason other than death, disability
or Cause (as defined in the 1998 Incentive Compensation Plan), or (y) one
year, if the termination resulted from death or disability; provided, that in
the event the termination resulted from a removal for Cause, such option shall
immediately terminate and no longer be exercisable to any extent; provided,
further, that in no event shall any such option remain exercisable past the
remainder of its scheduled ten-year term.
Upon a "change in control" of the Company (as defined in the Non-Employee
Directors Plan), each outstanding option shall fully vest and become
immediately exercisable in full. In addition, the Committee may provide in its
sole discretion that upon a change in control of the Company, each Non-
Employee Director shall be entitled to receive in cancellation of such Non-
Employee Director's outstanding and unexercised stock options, a cash payment
in an amount equal to the difference between the option price of such stock
options and (i) in the event the change of control is the result of a tender
offer or exchange offer for the Common Stock, the final offer price per share
paid for the Common Stock, multiplied by the number of shares of Common Stock
covered by such stock options, or (ii) in the event the change of control is
the result of any other occurrence, the aggregate value of the Common Stock
covered by such stock options, as determined by the Committee at such time.
COMPENSATION OF EXECUTIVE OFFICERS
The table below sets forth the compensation paid to, deferred or accrued for
the benefit of, the Company's Chief Executive Officer and each of the four
other most highly compensated executive officers for services rendered in all
capacities to the Company during the fiscal year ended December 31, 1997.
1997 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- ------------------------
NAME AND PRINCIPAL RETIREMENT STOCK ALL OTHER
POSITION SALARY($) BONUS($) PLAN($) OPTIONS(#)(1) COMPENSATION($)(2)
------------------ ---------- --------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Eric Hippeau.......... 1,350,000 14,063 16,000 31,000 1,566
Chairman and Chief
Executive Officer
Jason E. Chudnofsky... 800,000 -- (3) 7,385 10,000 20,884
President and Chief
Executive Officer,
ZDCF
Claude P. Sheer....... 457,500 342,656 16,000 9,500 1,566
President, ZD
Publishing
Timothy C. O'Brien.... 462,500 305,850 16,000 7,700 20,806
Chief Financial
Officer
Robert G. Brown....... 382,500 253,151 16,000 3,200 5,949
President, ZD Market
Intelligence
</TABLE>
- --------
(1) Represents options to purchase stock of SOFTBANK Corp.
(2) All Other Compensation does not include certain payments in 1997 for
services rendered in 1994. See Note 9 to the ZDI and ZDCF Combined
Financial Statements and "Certain Transactions."
(3) Does not include bonus of $300,000 paid in 1997 for 1996.
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<PAGE>
STOCK PLANS
Incentive Compensation Plan
General. The Company has adopted a 1998 Incentive Compensation Plan (the
"Plan") to provide long-term incentives for its key employees and enhance
shareholder value. The Plan will be administered by the Compensation Committee
(for purposes herein, the "Committee"), which will (i) select the
participants, determine the type of awards, and the number of shares or share
units subject to awards, and (ii) interpret the Plan and make all other
determinations necessary or advisable for its administration.
All employees and consultants of the Company and its affiliates who have
demonstrated significant management potential or the capacity for contributing
substantially to the successful performance of the Company and its affiliates,
are eligible to be participants in the Plan. Awards may consist of stock
awards, stock options (either incentive stock options within the meaning of
Section 422 of the Internal Revenue Code or nonstatutory stock options), stock
appreciation rights, performance shares (which may be granted as performance
share units) and restricted stock (which may be granted as restricted stock
units).
The Common Stock available for awards under the Plan shall not exceed
8,500,000 shares. In the event of any change in the outstanding shares by
reason of any stock dividend or split, recapitalization, merger or other
corporate change, or any distributions to common shareholders other than
regular cash dividends, the Committee may make such substitution or
adjustment, if any, as it deems to be equitable, as to the number or kind of
shares of Common Stock or other securities issued pursuant to the Plan and to
outstanding awards. Shares subject to an award that expires unexercised, is
forfeited, or terminated, or settled in cash in lieu of Common Stock, and
shares tendered to pay for the exercise of a stock option, shall thereafter
again be available for grant under the Plan.
Each award under the Plan shall be evidenced by an agreement setting forth
the terms and conditions, as determined by the Committee, which apply to such
award. In the sole discretion of the Committee, a participant may be permitted
to defer the receipt of cash or Common Stock otherwise deliverable under any
award.
Stock Options. The Committee shall establish the option price at the time
each stock option is granted, which price shall not be less than 100% of the
fair market value of the Common Stock on the date of grant. Stock options
shall vest and become exercisable at a rate determined by the Committee, and
shall remain exercisable for such period as specified by the Committee. The
award agreements in respect of options that are intended to qualify as
incentive stock options will contain any additional provisions necessary to
comply with the requirements of Section 422 of the Internal Revenue Code. In
no event may any employee receive in any calendar year grants of stock options
with respect to more than 1,000,000 shares of Common Stock.
The option price of each share as to which a stock option is exercised will
be paid in full at the time of such exercise in cash, by tender of shares of
Common Stock owned by the participant valued at fair market value, by a "sale
to cover" broker transaction or other cashless exercise method permitted under
Regulation T of the Federal Reserve Board, or by a combination of cash, shares
of Common Stock and other consideration as the Committee deems appropriate.
Stock Appreciation Rights. Stock appreciation rights ("SARs") may be granted
in tandem with a stock option or unrelated to a stock option. SARs shall vest
and become exercisable at a rate determined by the Committee, and shall remain
exercisable for such period as specified by the Committee. A SAR entitles its
holder to receive from the Company an amount equal to the excess of the fair
market value of a share of Common Stock on the exercise of the SAR over the
fair market value on the date of grant. The Committee may determine in its
sole discretion whether a SAR will be settled in cash, Common Stock or a
combination thereof. In no event may any employee receive in any calendar year
grants of SARs with respect to more than 500,000 shares of Common Stock.
Performance Shares. Performance shares may be granted in the form of actual
shares of Common Stock or share units having a value equal to an identical
number of shares of Common Stock. The performance
62
<PAGE>
conditions and the length of the performance period will be determined by the
Committee but in no event may a performance period be less than one year. The
Committee may determine in its sole discretion whether performance shares
granted in the form of share units shall be paid in cash, Common Stock, or a
combination thereof.
Unless the Committee determines otherwise, awards of performance shares to a
Covered Employee will be subject to performance conditions based on the
achievement by the Company of target levels of items such as consolidated net
income, return on shareholders' equity, return on net assets or share price
performance. For purposes of the 1998 Incentive Compensation Plan, a "Covered
Employee" generally includes any employee that would be a covered employee
within the meaning of Section 162(m) of the Internal Revenue Code, and any
other employee of the Company or its subsidiaries designated by the Committee
in its discretion. The maximum number of performance shares subject to any
award to a Covered Employee is 500,000 for the first 12 months during the
performance period and each 12-month period thereafter.
Restricted Stock. Restricted stock may be granted in the form of actual
shares of Common Stock or share units having a value equal to an identical
number of shares of Common Stock. The employment conditions and the length of
the period for vesting of restricted stock will be established by the
Committee at time of grant, except that each restriction period shall not be
less than twelve months. During the restricted period, shares of restricted
stock may not be sold, assigned, transferred or otherwise disposed of, or
pledged or hypothecated as collateral for a loan or as security for the
performance of any obligation or for any other purpose as the Committee shall
determine. The Committee may determine in its sole discretion whether
restricted stock granted in the form of share units will be paid in cash,
Common Stock or a combination thereof.
Stock awards. In addition to awards of performance shares and restricted
stock, awards of Common Stock may be granted under the Plan in the form of
actual shares of Common Stock. Full ownership of such shares, whether issued
in the form of a certificate or in book entry, including the right to vote and
receive dividends, shall immediately vest in such participant.
Change in Control. In the event of a Change in Control (as defined below):
(i) all stock options will be fully vested and exercisable in full (ii) all
SARs which have not been granted in tandem with stock options will become
exercisable in full (iii) the restrictions applicable to all shares of
restricted stock will lapse and such shares will be deemed fully vested and
all restricted stock granted in the form of share units will be paid in cash;
(iv) all performance shares will be deemed to be earned at target level; and
(v) all performance shares granted in the form of share units will be paid in
cash.
For purposes of the Plan, "Change in Control" is generally defined as (i) a
change in the majority of the Board of Directors except upon consent of the
previous Board of Directors; (ii) certain mergers, consolidations or similar
corporate transactions in which the Company is not the surviving corporation
or entity; or (iii) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or a sale of all or substantially
all of the Company's assets; provided, that a Change in Control will not be
deemed to occur under clause (ii) if Softbank, directly or indirectly, is the
beneficial owner of more than 25% of the Company's voting securities or of the
voting securities of any surviving corporation, respectively.
Amendment and Termination. The Board of Directors may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that (a) no
amendment will be made without stockholder approval (including an increase in
the number of shares reserved for issuance under the Plan) if such approval is
necessary to comply with any applicable law, regulations or stock exchange
rule, and (b) except as otherwise provided under the cashout provisions in the
event of a Change in Control, no amendment will be made that would adversely
affect the rights of a participant under any award previously granted, without
such participant's written consent.
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<PAGE>
Effective Date. The Plan will have a term of ten years from February 13,
1998, subject to earlier termination.
Softbank Executive Stock Option Plans
The SOFTBANK Group Executive Stock Option Plans (the "Softbank Plans")
authorize the grant of options to those officers, directors and key employees
of Softbank as selected by a committee appointed by the Board of Directors of
SOFTBANK Holdings Inc. The Softbank Plans authorize the granting of options to
purchase SOFTBANK Corp. common stock at not less than 100% of the closing
market price on the date the option is granted. As of December 31, 1997,
substantially all options granted become exercisable in various installments
over the first six anniversaries of the date of grant and expire ten years
after the date of grant.
As of December 31, 1997, 966,986 options had been granted under the Softbank
Plans. On January 19, 1998, the exercise price of all options was reset at
4,000 Japanese yen per share, the market price of SOFTBANK Corp.'s common
stock on that date.
Employee Stock Purchase Plan
General. The Company has adopted an employee stock purchase plan (the "Stock
Purchase Plan"). The Stock Purchase Plan is intended to meet the applicable
requirements of Section 423 of the Internal Revenue Code and will be
administered by the Committee.
Option to Purchase. Under the Stock Purchase Plan, all full-time and certain
part-time employees of the Company who meet certain minimum service
requirements will be eligible to purchase shares of Common Stock by means of
payroll deductions. Eligible employees may elect to participate in offering
periods by authorizing after-tax payroll deductions of between 1% and 10% (in
whole percentages) of their base pay for the purchase of shares of Common
Stock. The aggregate maximum number of shares of Common Stock purchasable
under the Stock Purchase Plan is 1,500,000, subject to adjustment by the
Committee in its sole discretion in the event of any increase, reduction or
change or exchange of shares of Common Stock for a different number or kind of
shares or other securities of the Company by reason of any stock dividend or
split, recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other corporate change, or any distribution to common
shareholders other than cash dividends. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
as a result of which the Company is not the surviving corporation, or upon a
sale of substantially all of the Company's assets, or a sale or distribution
of a subsidiary of the Company, any affected participant will thereafter be
entitled to receive, for each share of Common Stock subject to such
participant's option, the cash, securities and/or property which a holder of
one share of Common Stock was entitled to receive upon and at the time of such
transaction.
The price at which shares of Common Stock will be purchased at the end of
each purchase period will be the lesser of (i) 85% of the Fair Market Value of
a share of Common Stock on the first business day of such purchase period or
(ii) 85% of the fair market value on the last business day of each purchase
period. No participating employee will be entitled in any calendar year to
purchase Common Stock having an aggregate fair market value as of the first
business day in any Purchase Period in excess of $25,000.
Amendment and Termination. The Board may at any time terminate or amend the
Plan. No such termination shall adversely affect options previously granted
and no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. No amendment shall be
effective unless approved by the shareholders of the Company if such
shareholder approval of such amendment is required to comply with any law,
regulation or stock exchange rule.
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EMPLOYMENT AGREEMENTS
Eric Hippeau. The Company has entered into an employment agreement with Mr.
Hippeau, dated as of April 1, 1998, pursuant to which Mr. Hippeau will serve
as the Chairman and Chief Executive Officer of the Company through March 31,
2004. Pursuant to this agreement, Mr. Hippeau will receive an annual base
salary of not less than $900,000 and an annual incentive bonus of not less
than $600,000, as determined by the Compensation Committee assuming the
achievement of performance targets. The Company has granted Mr. Hippeau
options to acquire up to 860,000 shares of Common Stock pursuant to the Plan,
of which 430,000 shares are based upon the achievement of certain performance
targets.
Upon certain terminations of employment, the Company will pay Mr. Hippeau
his base salary plus his average incentive bonus for the preceding two years
for a period ending on the later of the date that is two years after the date
of termination or March 31, 2001. In the event that Mr. Hippeau's employment
is terminated in connection with a "change of control" (as defined), the
Company will pay Mr. Hippeau an amount which, on an after-tax basis, will
equal any excise tax imposed by Section 4999 of the Code as a result of
payments made under the agreement.
Jason Chudnofsky. The Company has entered into an employment agreement with
Mr. Chudnofsky, dated as of April 1, 1998, pursuant to which Mr. Chudnofsky
will serve as the Chairman and Chief Executive Officer of ZDCF through March
31, 2001. Pursuant to this agreement, Mr. Chudnofsky will receive an annual
base salary of not less than $800,000 and an annual incentive bonus of
$300,000, subject to adjustment and assuming the achievement of earnings and
other performance targets, as determined by the board of directors of ZDCF.
The Company has granted Mr. Chudnofsky options to acquire up to 300,000 shares
of Common Stock pursuant to the Plan.
Upon certain terminations of employment, the Company will pay Mr. Chudnofsky
his base salary plus his average incentive bonus for the year of termination
and the preceding two years for a period ending on the later of the date that
is two years after the date of termination or March 31, 2001.
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CERTAIN TRANSACTIONS
ARRANGEMENTS BETWEEN THE PRINCIPAL STOCKHOLDERS AND THE COMPANY
The Company and Softbank have entered into certain agreements governing
ongoing business relationships between them, including: (i) a master license
agreement for Softbank's producing and distributing Ziff-Davis publications in
Japan; (ii) a license agreement for Softbank's operating ZDNet in Japan; and
(iii) a series of agreements, including a trademark license agreement,
technical assistance agreement and accounting and administrative services
agreement, pursuant to which the Company will manage all ZDCF trade shows and
conferences conducted in Japan, but owned by Softbank. Total revenue earned by
the Company from such trade show and conference agreements will approximate
50% of the pre-tax income generated by such trade shows and conferences.
Softbank has given the Company an undertaking not to expand operations
involving (x) publishing information on computing and Internet-related
technology through the media of print, CD-Rom/DVD, Internet and television, or
(y) producing trade shows, conferences, exhibitions and similar events
primarily related to computing and Internet-related technology outside Japan
in competition with the Company without the prior approval of the Company's
management directors after consulting with the Company's independent
directors. This undertaking does not preclude investments by investment funds
managed by Softbank. Softbank manages certain venture capital funds which
invest in, among other things, computer and Internet-related companies. These
funds may be able to co-invest with the Company or compete with the Company
with respect to new investments. Softbank may develop new funds in the future,
which funds may compete with the Company for investment opportunities. The
Company has undertaken not to compete with Softbank in Japan without the prior
approval of SOFTBANK Corp.'s Board of Directors and to afford Softbank the
continuing right to license all of the Company's products and services in
Japan. See "Risk Factors--Control by Principal Stockholders and Potential
Conflicts of Interest."
The Company and Softbank entered into a Registration Rights Agreement, dated
as of April 1, 1998, in connection with the Offering. The Agreement entitles
Softbank to require the Company to register any or all of the Common Stock
held by it in a public offering pursuant to the Securities Act of 1933, as
amended, as well as to "piggyback" or include its shares of Common Stock in
any registration of Common Stock made by the Company.
CERTAIN RELATED PARTY TRANSACTIONS
The Company is a member of a group of companies affiliated through common
ownership under SOFTBANK Corp. and has various transactions and relationships
with members of the group, including SOFTBANK Corp.'s wholly-owned U.S.
subsidiary, SOFTBANK Holdings Inc. ("SBH"). Because of these relationships, it
is possible that the terms of the various transactions are not those that
would result from an arm's length dealing among unrelated parties.
In December 1994, as part of the acquisition of ZD Expos, MAC purchased a
portion of the trade show assets for $45 million and its parent company, Son
Kosan Ltd., purchased an additional portion for $30 million. Concurrently with
the purchase of assets, SB Forums and Son Kosan Inc. entered into a management
agreement pursuant to which SB Forums agreed to provide management services
with respect to certain Son Kosan operations in Japan, France and Germany. SB
Forums earned approximately $808,000, $1,667,000 and $2,644,000 for such
services for the years ended December 31, 1995, 1996 and 1997 respectively.
Son Kosan's trade show assets were sold to SB Forums for $10 million in
January 1997 and certain of MAC's trade show assets are being contributed to
ZDCF as part of the Reorganization. See "The Reorganization."
In February 1996, as part of the acquisition of ZD Pubco, MAC purchased
certain publishing assets for $302 million in cash. Concurrently with the sale
of assets, ZDI and MAC entered into a management agreement pursuant to which
ZDI agreed to provide management services with respect to the purchased
assets. The
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Company earned approximately $2 million for such services for each of the
years ended December 31, 1996 and 1997, respectively. Of these assets, a
portion was transferred to ZDI for $100 million as of October 31, 1997 and the
balance will be sold to ZDI for $270 million concurrently with the Offering.
See "The Reorganization." The purchase price for the assets sold to ZDI was
not more than fair market value as determined by an independent appraiser.
ZDI and Softbank entered into a series of license and syndication agreements
pursuant to which Softbank was granted the license to publish, or use certain
materials from, PC Week, Computer Shopper, PC Computing, MacWeek, Computer
Gaming World, PC Magazine and Internet Business Advantage. The Company earned
approximately $963,948 and $1,817,986 in connection therewith for the years
ended December 31, 1996 and 1997, respectively. Such agreements are being
combined into the master license agreement described above.
The Company has advanced funds for the account of MAC in managing the MAC
Assets and ZDTV, bearing interest at the 30-day LIBOR rate plus .50%; subject
to periodic reimbursement by MAC. Such advances totalled $8.1 million, $68.2
million and $70.9 million in 1995, 1996 and 1997, respectively. The remaining
outstanding amount as of December 31, 1997 of $42.6 million will be reimbursed
in connection with the Reorganization. See Note 9 to the Notes to the Combined
Financial Statements of ZDI and ZDCF.
During 1996 and 1997, the Company recorded revenues of approximately $.9
million and $2.7 million, respectively, from sales of advertising space and
trade show services to Kingston, an 80%-owned Softbank partnership. These
services were provided under terms consistent with those provided to
unaffiliated customers. See Note 9 of the Notes to the Combined Financial
Statements. Concurrently with the Offering the Company is entering into a
sale-leaseback transaction with Kingston. See "The Reorganization."
In 1997 the Company had an arrangement with SOFTBANK Interactive Marketing
("SIM"), a 65.3%-owned Softbank subsidiary, for providing interactive media
sales. The Company paid SIM approximately $.6 million and $1.8 million in
commissions for the years ended December 31, 1996 and 1997, respectively.
Effective December 31, 1997, SIM was acquired by an unrelated third party and
the Company terminated its representation agreement with SIM. See Note 9 of
the Notes to the Combined Financial Statements of ZDI and ZDCF.
During 1996 and 1997, the Company and Softbank were parties to a joint
venture agreement pursuant to which the Company managed all ZDCF trade shows
and conferences conducted in Japan. The Company earned approximately
$1,727,000 and $1,413,000 for such services for the years ended December 31,
1996 and 1997, respectively.
During 1996 and 1997, the Company incurred $2 million and approximately $1.6
million in advertising expenses with Yahoo! Inc., which is 29.4% owned by
Softbank. Mr. Yang is a co-founder and Chief Yahoo and Mr. Hippeau is a
director of Yahoo! Inc.
During 1995 to 1997, the Company issued notes payable to Softbank in an
aggregate principal amount of $2.5 billion as of December 31, 1997,
principally for indebtedness incurred in the acquisition of ZD Expos, COMDEX
and ZD Pubco. See Note 9 of the Notes to the Combined Financial Statements.
As part of the acquisition of the Company by its former owner in 1994, the
Company agreed to assume certain obligations to management arising out of
prior employment arrangements with Ziff Communications Company. In 1995 and
immediately after the end of the 1996 calendar year, the Company paid under
such arrangements $29,702,469 to Mr. Hippeau, the Company's Chairman and CEO
and a Director of the Company, and $1,014,565 to Mr. Sheer, the President of
ZD Publishing and a Director of the Company. See Note 9 to the Notes to the
Combined Financial Statements of ZDI and ZDCF.
The Company has participated in the U.S. Softbank cash management program,
periodically transferring excess cash to SBH and in turn receiving cash
advances from SBH to fund the Company's short-term working capital
requirements. Under the program, interest is accrued based on the net balance
outstanding at the end of
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each month. Interest income is earned at the 30-day LIBOR rate. Interest
expense is incurred at such rate plus .50%. As of December 31, 1996 and 1997,
such net cash transfers from the Company to SBH amounted to $41.3 million and
$76.5 million, respectively. See Note 9 of the Notes to the Combined Financial
Statements of ZDI and ZDCF.
During 1997, the Company was a guarantor under SBH's $150 million loan
agreement with The Bank of New York, under which $102.5 million was
outstanding as of December 31, 1997, bearing interest at a weighted average
rate of 6.51% per annum. In March, 1998 this agreement was amended and
restated to increase the loan amount to $450 million. Under the amended
agreement, the Company is a guarantor under SBH's $450 million credit facility
with The Bank of New York, as agent, The Bank of New York and Morgan Stanley
Senior Funding, Inc., as lenders, and certain affiliate guarantors. The
agreement governing the credit facility contains certain restrictive covenants
and other provisions which bind the Company, but it does not prevent the
Company from consummating the Offering. Concurrently with the Reorganization,
the Company will repay obligations due to SBH; and it is expected that SBH
will use a portion of such proceeds to prepay the loans under the credit
facility and terminate the commitments thereunder.
SBH and its subsidiary SBH Delaware have agreed to act as guarantors for
payments under the Company's lease for its new headquarters located at 28 East
28th Street, New York, New York. In addition, the various intercompany loans
from SBH Delaware to the Company were subordinated to the lease agreement. In
accordance with the terms of these agreements, these arrangements will
terminate when the Company and SBH meet minimum net worth levels of $850
million and $715 million, respectively, upon completion of the Offerings, at
which time the Company will become the sole guarantor under the lease.
During 1997, the Company entered into an operating lease with GE Capital
Corp. for certain television production equipment that the Company subleased
to ZDTV on similar terms. This arrangement is expected to continue upon
completion of the Offering. The total amount of leased equipment will not
exceed $10 million.
During 1997, the Company participated in a global insurance program
implemented by SBH. Upon completion of the Offering, it is expected that the
Company will remain a part of this program. The total amount of insurance
expenses allocated to the Company for the period from August 1, 1997 to July
30, 1998 does not exceed $1.35 million.
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PRINCIPAL STOCKHOLDERS
The Company is a newly organized Delaware corporation, incorporated on
February 4, 1998, with no stock issued prior to the Reorganization. SBH is a
wholly-owned subsidiary of SOFTBANK Corp. which, as of December 31, 1997, was
50.2% owned by Mr. Masayoshi Son, its President, including 43.4% directly held
by his 99% owned holding company, MAC. Upon completion of the Reorganization,
Softbank will own approximately 74.2% of the outstanding shares of Common Stock
and approximately 25.8% of the outstanding shares of Common Stock will be owned
by the public.
The following table sets forth, as of April 1, 1998, certain information,
after giving effect to the Reorganization, with respect to the beneficial
ownership of the Common Stock (i) by each person or entity which beneficially
owns in excess of five percent of the Common Stock and (ii) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT
BENEFICIAL OWNER COMMON STOCK(1) OF CLASS
- ---------------- ------------------- --------
<S> <C> <C>
SOFTBANK Holdings Inc.(2) ......................... 74,200,000 74.2%
SOFTBANK Corp.(3) ................................. 74,200,000 74.2
MAC Inc.(4)........................................ 74,200,000 74.2
Masayoshi Son(5)................................... 74,200,000 74.2
Officers and directors as a group.................. 74,200,000 74.2
</TABLE>
- --------
(1) Assumes no exercise of the U.S. Underwriters' over-allotment option and
does not include 10 million shares of Common Stock reserved for issuance
under the Company's Incentive Compensation, Non-Employee Directors Option
and Employee Stock Purchase Plans. See "Management--Stock Plans."
(2) Includes shares of Common Stock owned by Kingston which may be deemed
to be beneficially owned by SBH. Such entity's address is 10 Langley Road,
Suite 403, Newton Center, MA 02159.
(3) Reflecting shares of Common Stock owned by SBH, a wholly-owned subsidiary
of SOFTBANK Corp. Such entity's address is c/o SOFTBANK Corp., 24-1
Nihonbashi-Hakozakicho, Chuo-ku, Tokyo 103, Japan.
(4) Reflecting shares of Common Stock owned by SBH and indirectly by SOFTBANK
Corp., which is 43.4% owned by MAC. Such entity's address is 1-4-2
Azabudai, Minato-ku, Tokyo (106-0041).
(5) Reflecting shares of Common Stock owned by SBH and indirectly by SOFTBANK
Corp. and MAC, which is 99% directly and indirectly owned by Mr. Son,
SOFTBANK Corp.'s President. Such person's address is c/o SOFTBANK Corp.,
24-1 Nihonbashi-Hakozakicho, Chuo-ku, Tokyo 103, Japan.
After giving effect to the Reorganization, Kingston will own shares of
Common Stock, or less than 1% of the class of Common Stock. Concurrently with
the Offering SOFTBANK Kingston Inc., an affiliate of the Company and a wholly-
owned subsidiary of SBH, intends to sell a portion of the shares of Common
Stock of the Company issued to Kingston pursuant to the Registration Statement
of which this Prospectus forms a part. See "The Reorganization" and
"Underwriters."
As a result of its beneficial ownership of Common Stock, Softbank will be
able to influence significantly matters affecting the Company and will be in a
position to direct the election of all members of the Board of Directors and to
control even those actions that require the approval of two-thirds or more of
the voting share capital of the Company, including amendments to the Company's
Certificate of Incorporation and any business combinations. See "Risk Factors--
Control by Principal Stockholders and Potential Conflicts of Interest" and
"Description of Capital Stock--Certain Provisions of the Certificate of
Incorporation and By-laws."
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DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Company's capital stock
describes all material provisions of, but does not purport to be complete and
is subject to, and qualified in its entirety by, the Company's Certificate of
Incorporation and By-laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law. See "Additional Information."
At the time of the Offering, the total amount of authorized capital stock of
the Company will be 130 million shares, consisting of 120 million shares of
Common Stock, par value $.01 per share, and 10 million shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Upon completion of
the Offering, 100 million shares of Common Stock and no shares of Preferred
Stock will be issued and outstanding. As of April 1, 1998, there were no
shares of Common Stock outstanding. The discussion herein describes the
Company's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") and By-laws, as anticipated to be in effect upon
consummation of the Offering, and their effect on the Common Stock.
Prior to the Offering, there has been no public market for the Common Stock.
See "Risk Factors--No Prior Public Market; Possible Volatility of Stock
Price."
COMMON STOCK
The shares of Common Stock to be issued in the Reorganization will be, and
the shares of Common Stock being offered by the Company will be upon payment
therefor, validly issued, fully paid and nonassessable. The holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such time and in such amounts as the
Board of Directors may from time to time determine. See "Dividend Policy." The
shares of Common Stock are not convertible and the holders thereof have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata the assets of the Company which
are legally available for distribution, after payment of all debts and other
liabilities. Each outstanding share of Common Stock is entitled to one vote on
all matters submitted to a vote of the stockholders, including election of
directors. There is no cumulative voting. Except as otherwise required by law
or the Certificate of Incorporation, the Common Stock will vote on all matters
submitted to a vote of the stockholders, including election of directors.
PREFERRED STOCK
The Certificate of Incorporation provides that shares of Preferred Stock may
be issued in one or more series from time to time by the Board of Directors,
and the Board is expressly authorized to fix by resolution or resolutions the
designations and the powers, preferences and rights, and the qualifications,
limitations and restrictions thereof, of the shares of each series of
Preferred Stock, including without limitation the following: (a) the
distinctive serial designation of such series which shall distinguish it from
other series; (b) the number of shares included in such series; (c) the
dividend rate (or method of determining such rate) payable to the holders of
the shares of such series, any conditions upon which such dividends shall be
paid and the date or dates upon which such dividends shall be payable; (d)
whether dividends on the shares of such series shall be cumulative and, in the
case of shares of any series having cumulative dividend rights, the date or
dates or method of determining the date or dates from which dividends on the
shares of such series shall be cumulative; (e) the amount or amounts which
shall be payable out of the assets of the Company to the holders of the shares
of such series upon voluntary or involuntary liquidation, dissolution or
winding up the Company, and the relative rights of priority, if any, of
payment of the shares of such series; (f) the price or prices at which, the
period or periods within which and the terms and conditions upon which the
shares of such series may be redeemed, in whole or in part, at the option of
the Company or at the option of the holder or holders thereof or upon the
happening of a specified event or events; (g) the obligation, if any, of the
Company to purchase or redeem shares of such series pursuant to a sinking fund
or otherwise and the price or prices at which, the period or periods within
which and
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the terms and conditions upon which the shares of such series shall be
redeemed or purchased, in whole or in part, pursuant to such obligation; (h)
whether or not the shares of such series shall be convertible or exchangeable,
at any time or times at the option of the holder or holders thereof or at the
option of the Company or upon the happening of a specified event or events,
into shares of any other class or classes or any other series of the same or
any other class or classes of stock of the Company, and the price or prices or
rate or rates of exchange or conversion and any adjustments applicable
thereto; and (i) whether or not the holders of the shares of such series shall
have voting rights, in addition to the voting rights provided by law, and if
so the terms of such voting rights. Subject to the rights of the holders of
any series of Preferred Stock, the number of authorized shares of any class or
series of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote, irrespective
of the provisions of Section 242(b)(2) of the General Corporation Law of
Delaware (the "DGCL") or any corresponding provision hereafter enacted.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Staggered Board of Directors
Following the Offering, the Board of Directors will consist of ten members.
The Certificate of Incorporation provides that the directors of the Company
will be divided into three classes, as nearly equal in number as reasonably
possible, as determined by the Board. The initial term of office of Class I
directors will expire at the first annual meeting of stockholders, the initial
term of office of Class II directors will expire at the second annual meeting
of stockholders and the initial term of office of Class III directors will
expire at the third annual meeting of stockholders, with each class of
directors to hold office until their successors have been duly elected and
qualified. At each annual meeting of stockholders, directors elected to
succeed the directors whose terms expire at such annual meeting shall be
elected to hold office for a term expiring at the annual meeting of
stockholders in the third year following the year of their election and until
their successors have been duly elected and qualified. The classification of
the Board will have the effect of making it more difficult for stockholders to
change the composition of the Board, because only a minority of the directors
are up for election at each annual meeting, and the Board may not be replaced
by vote of the stockholders at any one time.
Number of Directors; Removal; Filling Vacancies
The Certificate of Incorporation provides that the number of members of the
Board of Directors will be fixed from time to time pursuant to the By-laws.
The By-laws provide that the Board will consist of one or more members, the
number of which will be determined from time to time by the Board. The
Certificate of Incorporation and By-laws provide that in the event of any
increase or decrease in the authorized number of directors, (a) each director
then serving as such shall nevertheless continue as a director of the class of
which he is a member until the expiration of his current term, or his earlier
death, retirement, resignation, or removal, and (b) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board among the three classes of directors so as to
maintain such classes as nearly equal in number as reasonably possible. The
Certificate of Incorporation and By-laws provide that directors may be removed
only for cause except that a director who is also an officer may be removed
upon ceasing to be an officer. The By-laws provide that vacancies, whether
arising through death, retirement, resignation or removal of a director or
through an increase in the authorized number of directors of any class, may
only be filled by a majority vote of the remaining directors of the class in
which such vacancy occurs, or by the sole remaining director of that class if
one such director remains, or by the majority vote of the directors of the
remaining classes if no such director remains, or by stockholders at an annual
meeting of stockholders of the Company. A director elected to fill a vacancy
shall serve for the remainder of the then present term of office of the class
to which he is elected. These provisions would prevent any stockholder from
enlarging the Board and then filling the new directorships with such
stockholder's own nominees.
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No Stockholder Action by Written Consent; Special Meetings
The Certificate of Incorporation and By-laws provide that any action
required or permitted to be taken by the stockholders of the Company must be
duly effected at a duly called annual or special meeting of such holders and
may not be taken by any consent in writing by such holders. The Certificate of
Incorporation and By-laws provide that special meetings of stockholders of the
Company may be called only by the Chairman of the Board or the Board pursuant
to a resolution stating the purpose or purposes thereof, and any power of
stockholders to call a special meeting is specifically denied. No business
other than that stated in the notice shall be transacted at any special
meeting. These provisions will have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special meeting is
called by the Chairman, Vice Chairman, President or the Board for
consideration of such proposal.
Advance Notice for Stockholder Nominations and Proposals of New Business
The By-laws require notice of any proposal to be presented by any
stockholder or of the name of any person to be nominated by any stockholder
for election as a director of the Company at a meeting of stockholders to be
delivered to the Secretary of the Company not less than 60 nor more than 90
days prior to the date of the meeting. Accordingly, failure by a stockholder
to act in compliance with the notice provisions will mean that the stockholder
will not be able to nominate directors or propose new business.
Amendments
The Certificate of Incorporation provides that the affirmative vote of the
holders of at least 80% of the stock entitled to vote generally in the
election of directors, voting together as a single class, or a majority of the
Board of Directors is required to amend provisions of the By-laws relating to
stockholder action without a meeting; the calling of special meetings; the
number (or manner of determining the number), election and term of the
Company's directors; the filling of vacancies; and the removal of directors.
CERTAIN PROVISIONS OF DELAWARE LAW
Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of Section 203 of the DGCL. In general,
such provisions prohibit a publicly held Delaware corporation from engaging in
various "business combination" transactions with any "interested stockholder"
for a period of three years after the date of the transaction in which the
person became an "interested stockholder," unless: (i) the transaction is
approved by the Board of Directors prior to the date the "interested
stockholder" obtained such status; (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date the "business
combination" is approved by the Board of Directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" is defined to include mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
In general, an "interested stockholder" is a Person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of a corporation's voting stock. The statute could prohibit or delay mergers
or other takeover or change in control attempts with respect to the Company
and, accordingly, may discourage attempts to acquire the Company.
Section 203 and the provision of the Company's Certificate of Incorporation
and By-laws described above may make it more difficult for a third party to
acquire, or discourage bids for, the Company. Section 203 and these provisions
could have the effect of inhibiting attempts to change the membership of the
Company's Board of Directors.
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LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the DGCL authorizes a Delaware corporation to include a
provision in its certificate of incorporation limiting or eliminating the
personal liability of its directors to the corporation and its stockholders
for monetary damages for breach of the directors' fiduciary duty of care. The
duty of care requires that, when acting on behalf of the corporation,
directors exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations authorized by
such provision, directors are accountable to corporations and their
stockholders for monetary damages for conduct constituting gross negligence in
the exercise of their duty of care. Although Section 102 of the DGCL does not
change a director's duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Company's
Certificate of Incorporation and By-laws include provisions which limit or
eliminate the personal liability of its directors to the fullest extent
permitted by Section 102 of the DGCL. Consequently, a director or officer will
not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for (i) any breach
of the director's duty of loyalty to the Company or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases, redemptions or other distributions and (iv) any transaction
from which the director derived an improper personal benefit.
The Certificate of Incorporation and By-laws provide that the Company will
indemnify to the full extent permitted by law any person made or threatened to
be made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person or
such person's testator or intestate is or was a director, officer or employee
of the Company or serves or served at the request of the Company as a
director, officer or employee. The Certificate of Incorporation and By-laws
provide that expenses, including attorneys' fees, incurred by any such person
in defending any such action, suit or proceeding will be paid or reimbursed by
the Company promptly upon receipt by it of an undertaking of such person to
repay such expenses if it shall ultimately be determined that such person is
not entitled to be indemnified by the Company.
The inclusion of these indemnification provisions in the Company's Certificate
of Incorporation and By-laws is intended to enable the Company to attract
qualified persons to serve as directors and officers who might otherwise be
reluctant to do so.
The directors and officers of the Company are insured under policies of
insurance maintained by the Company, subject to the limits of the policies,
against certain losses arising from any claim made against them by reason of
being or having been such officers or directors. In addition, the limited
liability provisions in the Certificate of Incorporation and the
indemnification provisions in the Certificate of Incorporation and By-laws may
discourage stockholders from bringing a lawsuit against directors for breach
of their fiduciary duty (including breaches resulting from grossly negligent
conduct) and may have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise have benefitted the Company and it stockholders.
Furthermore, a stockholder's investment in the Company may be adversely
affected to the extent the Company pays the costs of settlement and damage
awards against directors and officers of the Company pursuant to the
indemnification provisions in the Company's By-laws. The limited liability
provisions in the Certificate of Incorporation will not limit the liability of
directors under federal securities laws.
LISTING
The Common Stock has been approved for listing on the NYSE under the symbol
"ZD," subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The Bank of New
York.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from the time. Nevertheless, sales of significant amounts of
Common Stock in the public market, or the perception that such sales may
occur, could adversely affect the prevailing market prices. See "Risk
Factors--Shares Eligible for Future Sale."
Upon completion of the Offering, the Company expects to have 100,000,000
shares of Common Stock outstanding. Of the shares outstanding after the
Offering, the 25,800,000 shares of Common Stock (29,670,000 shares if the U.S.
Underwriters' over-allotment is exercised in full) sold in the Offering and
that portion of 100,000 shares which SOFTBANK Kingston, Inc. intends to sell
concurrently with the Offering pursuant to the Registration Statement of which
this Prospectus forms a part will be freely tradeable without restriction
under the Securities Act, except for any such shares which may be acquired by
an "affiliate" of the Company (an "Affiliate"), which shares will be subject
to the volume limitations of Rule 144. As defined in Rule 144, an Affiliate of
an issuer is a person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
such issuer.
An aggregate of 74,100,000 shares of Common Stock held by existing
stockholders upon completion of the Offering will be "restricted securities"
(as that phrase is defined in Rule 144) and may not be resold in the absence
of registration under the Securities Act or pursuant to exemptions from such
registration, including among others, the exemption provided by Rule 144 under
the Securities Act. One year after the date of this Prospectus, such shares of
Common Stock will be eligible for sale in the public market pursuant to Rule
144, subject to the volume limitations and other restrictions described below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed
since the later of the date the "restricted securities" were acquired from the
Company and the date they were acquired from an Affiliate, then the holder of
such restricted securities (including an Affiliate) is entitled to sell a
number of shares within any three-month period that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock
(approximately 1,000,000 shares immediately after the Offering) or the average
weekly reported volume of trading of the Common Stock on the NYSE during the
four calendar weeks preceding such sale. The holder may only sell such shares
through unsolicited brokers' transactions. Sales under Rule 144 are also
subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
shares in accordance with the foregoing volume limitations and other
requirements without regard to any holding period. Under Rule 144 (k), if a
period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company and the date they were
acquired from an Affiliate, as applicable, a holder of such restricted
securities who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to
sell the shares immediately without regard to the volume limitations and other
restrictions described above.
Any employee of the Company who purchased his or her shares of Common Stock
or received an option to purchase Common Stock pursuant to a written
compensation plan or contract while the Company was not subject to the
reporting requirements of the U.S. Securities Exchange Act of 1934, as amended
(the "Exchange Act") may be entitled to rely on the resale provisions of Rule
701 under the Securities Act, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the current public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
Affiliates to sell their Rule 701 shares without having to comply with the
holding period provision of Rule 144, in each case beginning 90 days after the
Company became subject to the reporting requirements of the Exchange Act.
The Company and Softbank entered into a Registration Rights Agreement, dated
as of April 1, 1998 (the "Registration Rights Agreement"), in connection with
the Offering. The Registration Rights Agreement provides Softbank with the
right to require the Company to register any or all of the Common Stock held
by it in a public offering pursuant to the Securities Act of 1933, as amended.
Pursuant to the Registration Rights
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Agreement, Softbank also has the right to "piggyback" or include its Common
Stock in any registration of Common Stock made by the Company.
Notwithstanding the foregoing, in connection with the Offering, each of the
Company and SBH, which owns in aggregate 74.2 million shares of Common Stock,
has agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, during the period ending 180 days
after the date of the Prospectus, they will not, directly or indirectly, (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are then owned by such person or are thereafter acquired directly
from the Company) or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The restrictions described in this paragraph
do not apply to (a) the sale to the Underwriters of the shares of Common Stock
under the Underwriting Agreement, (b) the issuance by the Company of shares of
Common Stock upon the exercise of an option or a warrant or the conversion of
a security outstanding on the date of this Prospectus of which the
Underwriters have been advised in writing, (c) transactions by any person
other than the Company relating to shares of Common Stock or other securities
acquired in open market transactions after the completion of the offering of
the shares, (d) the issuance of shares of Common Stock in connection with the
Reorganization, or (e) the sale of up to 65,000 shares of Common Stock issued
in exchange for the Kingston assets. In addition, SBH has agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of
the Underwriters, neither it nor any of its affiliates will, during the period
ending 180 days after the date of the Prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for
Common Stock.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summaries of certain material provisions of the Company's
Notes and Credit Facility do not purport to be complete and are subject to,
and qualified in their entirety by, the Company's Indenture (as defined below)
and Credit Facility, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law. See "Additional Information."
NOTES
General
The Notes are to be issued under an Indenture, to be dated as of , 1998
(the "Indenture"), between the Company and The Bank of New York, as trustee
(the "Trustee"). The Notes are general unsecured senior subordinated
obligations of the Company, and will rank on a parity with all other unsecured
and subordinated indebtedness of the Company. The Notes will be subordinated
in right of payment to all senior indebtedness of the Company (including
indebtedness under the Credit Agreement) as well as all other Senior
Indebtedness (as defined in the Indenture).
The Notes will be limited to $250,000,000 aggregate principal amount and
will mature on , 2008. Interest on the Notes will be payable on and
of each year, commencing , 1998 at the rate of % per annum. The
Notes will be redeemable, at the Company's option, in whole or in part, at any
time after , 2003, at redemption prices starting at % of their
principal amount and declining to 100% of their principal amount on or after
, 2006 plus accrued and unpaid interest. In addition, upon a change of
control of the Company, each holder of Notes will have the right to require
the Company to purchase such holder's Notes. The Company will be permitted to
redeem a portion of the Notes following one or more public equity offerings
consummated prior to , 2001.
Covenants
The Indenture contains certain restrictive covenants, including, among
others, the following: (i) a limitation on the ability of the Company and its
Restricted Subsidiaries (as defined in the Indenture) to incur any
indebtedness other than Permitted Indebtedness (as defined in the Indenture)
or to incur senior subordinated indebtedness or certain indebtedness secured
by liens; (ii) a limitation on the ability of the Company and its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment (as
defined in the Indenture), including payment of dividends, prepayment of
subordinated indebtedness and the repurchase of capital stock; (iii) a
limitation on the ability of the Company to suffer to exist certain dividend
and other payment restrictions affecting its Restricted Subsidiaries; (iv) a
limitation on the ability of the Company to sell or to permit any Restricted
Subsidiary to issue or sell capital stock of a Restricted Subsidiary; (v) a
limitation on the ability of the Company and its Restricted Subsidiaries to
consummate certain Asset Sales (as defined in the Indenture) unless certain
conditions are fulfilled; and (vi) limitations on any transaction with
affiliates. Certain of these covenants will terminate if and when the Notes
receive an investment grade rating.
In addition, the Indenture limits the ability of the Company to merge with
or to transfer all or substantially all of its assets to another person.
Except as set forth above, the Indenture does not contain any material
quantitative financial requirements. The Notes provide for acceleration upon
customary events of default.
CREDIT FACILITY
The Company has obtained a commitment letter from The Bank of New York,
Morgan Stanley Senior Funding, DLJ Capital Funding and The Chase Manhattan
Bank to provide a $1.35 billion term Credit Facility. In connection with the
Reorganization, the Company will enter into the Credit Facility and borrow
$1.25 billion thereunder. The Credit Facility will consist of a seven year
$500 million reducing revolving credit facility (with $400 million drawn at
consummation of the Offerings), a seven year $450 million term loan and an
eight year
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$400 million term loan. The revolving credit commitments will be reduced and
the $450 million term loan will be amortized, beginning in September 2000, by
(x) 10% in 2000, in two equal quarterly installments, (y) 20% in each of 2001,
2002, 2003 and 2004 in four equal quarterly installments and (z) 10% at final
maturity in March 2005. The $400 million term loan will be amortized,
beginning in September 2000, by (x) $2 million in 2000, in two equal quarterly
installments, (y) $4 million in each of 2001, 2002, 2003, 2004 and 2005 in
four equal quarterly installments and (z) $378 million at final maturity in
March 2006. The Credit Facility will be secured, in part, by a first priority
security interest in capital stock of certain subsidiaries of the Company and
will be guaranteed by certain wholly-owned domestic subsidiaries of the
Company (in each case, including ZDI and ZDCF).
The Credit Facility will contain certain customary affirmative and negative
covenants, including covenants (subject to certain exceptions) with respect
to, among other things, the delivery of financial statements and other
information, limitations on dispositions of assets, changes of business and
ownership, mergers or acquisitions, restricted payments, indebtedness, loans
and investments, and transactions with affiliates, negative pledge of assets,
maintenance of adequate and customary insurance coverage, compliance with all
applicable laws and regulations, and restriction on modifications of certain
agreements, charter documents or other material documents without the consent
of the lenders. The Credit Facility will also contain certain financial
covenants.
The failure to satisfy any of the covenants would constitute an Event of
Default under the Credit Facility. The Credit Facility will also include other
customary events of default, including, without limitation, nonpayment,
misrepresentation in a material respect, cross-default to other indebtedness,
bankruptcy, ERISA, judgments and change of control.
The Credit Facility is subject to certain terms and conditions, including
without limitation negotiation, execution and delivery of definitive financing
agreements, in each case containing terms and conditions, representations and
warranties, covenants, indemnifications, events of default and conditions to
lending. There can be no assurance as to when or whether the Credit Facility
will be entered into or as to whether the Credit Facility will contain the
terms and conditions described above, and such may contain terms and
conditions more favorable or less favorable to the Company than set forth
above.
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CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person that, for United States federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or
an estate or trust, in each case not subject to United States federal income
tax on a net income basis in respect of income or gain from Common Stock (a
"non-U.S. holder"). This discussion does not consider the specific facts and
circumstances that may be relevant to particular holders in light of their
personal circumstances and does not address the treatment of non-U.S. holders
of Common Stock under the laws of any state, local or foreign taxing
jurisdiction. Further, the discussion is based on provisions of the United
States Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations thereunder, and administrative and judicial interpretations
thereof, all as in effect on the date hereof and all of which are subject to
change on a possibly retroactive basis. Each prospective holder is urged to
consult a tax advisor with respect to the United States federal tax
consequences of acquiring, holding and disposing of Common Stock, as well as
any tax consequences that may arise under the laws of any state, local or
foreign taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock will be subject to
withholding of United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business
within the United States (and are attributable to a United States permanent
establishment of such holder, if an applicable income tax treaty so requires
as a condition for the non-U.S. holder to be subject to United States income
tax on a net income basis in respect of such dividends). Such "effectively
connected" dividends are subject to tax at rates applicable to United States
citizens, resident aliens and domestic United States corporations, and are not
generally subject to withholding. Any such effectively connected dividends
received by a non-United States corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
Under currently effective United States Treasury regulations, dividends paid
to an address in a foreign country are presumed to be paid to a resident of
that country (unless the payor has knowledge to the contrary) for purposes of
the withholding discussed above and, under the current interpretation of
United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under recently finalized United States
Treasury regulations that will generally be effective for distributions after
December 31, 1999 (the "Final Withholding Regulations"), however, a non-U.S.
holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification requirements. In
addition, under the Final Withholding Regulations, in the case of Common Stock
held by a foreign partnership, (x) the certification requirement would
generally be applied to the partners of the partnership and (y) the
partnership would be required to provide certain information, including a
United States taxpayer identification number. The Final Withholding
Regulations also provide look-through rules for tiered partnerships.
A non-U.S. holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for
refund with the United States Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of Common Stock
except in the following circumstances: (i) the gain is effectively connected
with a trade or business conducted by the non-U.S. holder in the United States
(and is attributable to a permanent establishment maintained in the United
States by such non-U.S. holder if an applicable income tax treaty so requires
as a condition for such non-U.S. holder to be subject to United States
taxation on a net income
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basis in respect of gain from the sale or other disposition of the Common
Stock); (ii) in the case of a non-U.S. holder who is an individual and holds
the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale and certain other
conditions exist; (iii) the Company is or has been a "United States real
property holding corporation" for federal income tax purposes and, in the
event that the Common Stock is considered "regularly traded on an established
securities market," the non-U.S. holder held, directly or indirectly at any
time during the five-year period ending on the date of disposition, more than
5% of the Common Stock (and is not eligible for any treaty exemption); or (iv)
the non-U.S. holder is subject to tax pursuant to certain provisions of the
Code applicable to U.S. expatriates. Effectively connected gains realized by a
corporate non-U.S. Holder may also, under certain circumstances, be subject to
an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
The Company believes it is not currently, and does not anticipate becoming,
a "United States real property holding corporation" for federal income tax
purposes.
FEDERAL ESTATE TAXES
Common Stock held by a non-U.S. holder at the time of death will be included
in such holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current law, United States information reporting requirements (other
than reporting of dividend payments for purposes of the withholding tax noted
above) and backup withholding tax generally will not apply to dividends paid
to non-U.S. holders that are either subject to the 30% withholding discussed
above or that are not so subject because an applicable tax treaty reduces such
withholding. Otherwise, backup withholding of United States federal income tax
at a rate of 31% may apply to dividends paid with respect to Common Stock to
holders that are not "exempt recipients" and that fail to provide certain
information (including the holder's United States taxpayer identification
number). Generally, unless the payor of dividends has definite knowledge that
the payee is a United States person, the payor may treat dividend payments to
a payee with a foreign address as exempt from information reporting and backup
withholding. However, under the Final Withholding Regulations, dividend
payments generally will be subject to information reporting and backup
withholding unless applicable certification requirements are satisfied. See
the discussion above with respect to the rules applicable to foreign
partnerships under the Final Withholding Regulations.
In general, United States information reporting and backup withholding
requirements also will not apply to a payment made outside the United States
of the proceeds of a sale of Common Stock through an office outside the United
States of a non-United States broker. However, United States information
reporting (but not backup withholding) requirements will apply to a payment
made outside the United States of the proceeds of a sale of Common Stock
through an office outside the United States of a broker (i) that is a United
States person, (ii) that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, (iii)
that is a "controlled foreign corporation" as to the United States, or (iv)
(effective beginning January 1, 2000) a foreign partnership, if at any time
during its tax year, one or more of its partners are U.S. persons (as defined
in U.S. Treasury regulations) who in the aggregate hold more than 50% of the
income or capital interest in the partnership or if, at any time during its
tax year, such foreign partnership is engaged in a United States trade or
business, unless the broker has documentary evidence in its records that the
holder or beneficial owner is a non-United States person or the holder or
beneficial owner otherwise establishes an exemption. Payment of the proceeds
of the sale of Common Stock to or through a United States office of a broker
is currently subject to both United States backup withholding and information
reporting unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption.
A non-United States holder generally may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the United States Internal Revenue Service.
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UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") are acting as U.S. Representatives, and the International
Underwriters named below for whom Morgan Stanley & Co. International Limited,
Merrill Lynch International, Goldman Sachs International and Donaldson, Lufkin
& Jenrette International are acting as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Common Stock set forth opposite
the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Goldman, Sachs & Co. .............................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
----------
Subtotal........................................................ 20,640,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited........................
Merrill Lynch International.......................................
Goldman Sachs International.......................................
Donaldson, Lufkin & Jenrette International........................
----------
Subtotal........................................................ 5,160,000
----------
Total........................................................... 25,800,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the U.S. Underwriters' over-allotment option described below)
if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to the Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
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International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
between U.S. and International Underwriters. As used herein, "United States or
Canadian Person" means any national or resident of the United States or
Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Shares
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as contained
in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly
or indirectly, in Japan or to or for the account of any resident thereof
except for offers or sales to Japanese International Underwriters or dealers
and except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
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provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as contained in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering
price. Any Underwriter may allow, and such dealers may reallow, a concession
not in excess of $ a share to other Underwriters or to certain
other dealers. After the initial offering of the shares of Common Stock, the
offering price and other selling terms may from time to time be varied by the
Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
3,870,000 additional shares of Common Stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of Common Stock offered hereby. To the extent such option is exercised,
each U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as the number set forth next to such U.S. Underwriter's name in the
preceding table bears to the total number of shares of Common Stock set forth
next to the names of all U.S. Underwriters in the preceding table.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "ZD," subject to official notice of issuance. In
order to meet the requirements for listing the Common Stock on the New York
Stock Exchange, the Underwriters have undertaken to meet the New York Stock
Exchange's minimum distribution, issuance and aggregate market value
requirements.
At the request of the Company, the Underwriters have reserved shares of
Common Stock offered hereby for sale, at the initial public offering price, up
to 1,550,000 shares to be issued by the Company and offered hereby for
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such individuals purchase such
reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.
Each of the Company and SBH has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters,
during the period ending 180 days after the date of the Prospectus, they will
not, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(whether such shares or any such securities are then owned by such person or
are thereafter acquired directly from the Company) or (ii) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to (a) the sale to the
Underwriters of the shares of Common Stock under the Underwriting Agreement,
(b) the issuance by the Company of shares of Common Stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on the date
of this Prospectus of which the Underwriters have been advised in writing, (c)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares, (d) the issuance of shares of Common
Stock in connection with the Reorganization or (e) the sale of up to 65,000
shares of Common Stock issued in exchange for the Kingston assets. In
addition, SBH has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, neither it nor any
of its affiliates will, during the period ending 180 days after the date of
the Prospectus, make any demand for, or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
82
<PAGE>
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the Offering if the syndicate repurchases
previously distributed shares of Common Stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
The Underwriters have agreed to reimburse the Company for a portion of the
Company's expenses in connection with the Offering.
Concurrently with the Offering, SOFTBANK Kingston Inc., an affiliate of the
Company and a wholly-owned subsidiary of SBH, intends to sell a portion of the
100,000 shares of Common Stock of the Company issued to Kingston in exchange
for certain assets transferred to the Company which shares are included in the
Registration Statement of which this Prospectus forms a part. SOFTBANK
Kingston Inc. may sell such shares directly to purchasers or to or through
underwriters, brokers/dealers or agents. See "The Reorganization" and
"Principal Stockholders."
Certain of the Underwriters from time to time perform various investment
banking services for the Company and Softbank, for which such Underwriters
receive compensation. Morgan Stanley, Merrill Lynch and DLJ are also acting as
underwriters in connection with the Notes Offering and will receive customary
discounts and commissions in connection therewith. Morgan Stanley Senior
Funding, an affiliate of Morgan Stanley, and DLJ Capital Funding, an affiliate
of DLJ, will each act as an agent and a lender under the Credit Facility and
will receive fees pursuant to the Credit Facility customary to performing such
services. In addition, Morgan Stanley Senior Funding is currently a lender to
SBH under a $450 million revolving credit facility and will receive fees
pursuant to such financing arrangement customary to performing such services.
PRICING OF OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in determining the initial public offering price
will be the Company's record of operations, the Company's current financial
position and future prospects, the experience of its management, the economics
of the industry in general, the general condition of the equity securities
markets, sales, earnings and certain other financial operation information of
the Company in recent periods, the price-earnings ratios, price-sales ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
Preliminary Prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Sullivan & Cromwell, New York, New York, U.S. counsel to the
Company. Stephen A. Grant, a partner of Sullivan & Cromwell, owns 5,350 shares
of common stock of SOFTBANK Corp., which are held in a retirement account.
Certain legal matters will be passed upon for the Underwriters by Davis Polk &
Wardwell, New York, New York.
83
<PAGE>
EXPERTS
The Balance Sheet of ZD Inc. as of March 27, 1998 and the Combined Financial
Statements of Ziff-Davis Inc. and ZD COMDEX and Forums Inc. as of December 31,
1996 and 1997 and for the three years in the period ended December 31, 1997
and the Consolidated Financial Statements of Ziff-Davis Inc. at December 31,
1995 and February 28, 1996 and for the year ended December 31, 1995 and for
the period from January 1, 1996 to February 28, 1996, included in this
Prospectus have been so included in reliance upon the reports of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (together with all
amendments and exhibits, the "Registration Statement") under the Securities
Act, and the rules and regulations promulgated thereunder, with respect to the
Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Securities offered hereby, reference is hereby
made to the Registration Statement and to the schedules and exhibits thereto.
The Registration Statement, including the exhibits and schedules thereto, may
be inspected, without charge, and copies may be obtained, at prescribed rates,
at the public reference facilities of the Commission maintained at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of
the Registration Statement may also be inspected, without charge, at the
Commission's regional office at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. In addition, copies of the Registration Statement may be
obtained by mail at prescribed rates, from the Commission's Public Reference
Section at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
Upon completion of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Exchange Act, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities, regional offices and Web site referred to above.
84
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ZD INC.
Report of independent accountants........................................ F-2
Balance sheet as of March 27, 1998....................................... F-3
Notes to balance sheet................................................... F-4
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
Report of independent accountants........................................ F-5
Combined balance sheets as of December 31, 1996 and 1997................. F-6
Combined statements of operations for the years ended December 31, 1995,
1996 and 1997........................................................... F-7
Combined statements of cash flows for the years ended December 31, 1995,
1996 and 1997........................................................... F-8
Combined statements of changes in stockholder's equity for the years
ended December 31, 1995, 1996 and 1997.................................. F-9
Notes to combined financial statements................................... F-10
ZDI (ZIFF-DAVIS INC.)
Report of independent accountants........................................ F-28
Consolidated balance sheets as of December 31, 1995 and February 28,
1996.................................................................... F-29
Consolidated statements of operations for the year ended December 31,
1995 and for the period from January 1, 1996 to February 28, 1996....... F-30
Consolidated statements of cash flows for the year ended December 31,
1995 and for the period from January 1, 1996 to February 28, 1996....... F-31
Consolidated statements of changes in stockholder's equity for the year
ended December 31, 1995 and for the period from January 1, 1996 to
February 28, 1996....................................................... F-32
Notes to consolidated financial statements............................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
ZD Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of ZD Inc. at March 27, 1998 in
conformity with generally accepted accounting principles. This balance sheet
is the responsibility of the Company's management; our responsibility is to
express an opinion on this balance sheet based on our audit. We conducted our
audit in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about
whether the balance sheet is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the balance sheet, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
New York, NY
March 27, 1998
F-2
<PAGE>
ZD INC.
BALANCE SHEET
<TABLE>
<S> <C>
ASSETS
<CAPTION>
MARCH 27,
1998
---------
<S> <C>
Cash.................................................................. $ --
-----
Total assets.......................................................... $ --
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and contingencies (Notes 1 and 2).........................
Stockholders' equity.................................................. $ --
-----
Total liabilities and stockholders' equity............................ $ --
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ZD INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION
ZD Inc. (the "Company") is a newly formed nonstock corporation incorporated
in the State of Delaware on February 4, 1998. Upon completion of the
reorganization discussed below, the Company will be a majority-owned indirect
subsidiary of SOFTBANK Corp. and affiliates ("Softbank"). The Company's
capital structure after the reorganization will consist of 10,000,000
authorized shares of $.01 par value preferred stock with no shares issued and
outstanding and 120,000,000 authorized shares of $.01 shares of common stock
with 74,200,000 shares issued and outstanding.
The Company was formed to effect the reorganization of ZDI (Ziff-Davis Inc.)
and ZDCF (ZD COMDEX and Forums Inc.), both indirect wholly-owned subsidiaries
of Softbank. The reorganization is expected to be completed in the second
quarter of 1998 and will be accounted for in a manner similar to a pooling of
interests as the Company, ZDI and ZDCF will be companies under common control.
There have been no operations of ZD Inc. as of March 27, 1998, and,
accordingly, statements of ZD Inc.'s operations and cash flows have not been
included herein.
2. FINANCING ARRANGEMENTS
The Company expects to raise approximately $400,000,000 from the initial
public offering of its Common Stock, approximately $250,000,000 in notes, and
approximately $1,250,000,000 of senior bank debt. There can be no assurances
that the expected levels of financing from the Common Stock and Notes
Offerings will be obtained.
The Company has obtained a commitment from a group of banks to enter into a
$1.35 billion Credit Facility. The Credit Facility will consist of a seven-
year $500 million reducing revolving credit facility (with $400 million drawn
at closing), a seven-year $450 million term loan and an eight-year $400
million term loan. The revolving credit will be available for loans, letters
of credit, and swing-line loans, subject to a certain maximum level of
borrowing. The revolving credit commitments will be reduced and the $450 term
loan will be amortized, beginning in September 2000, by (x) 10% in 2000, in
two equal quarterly installments, (y) 20% in each of 2001, 2002, 2003 and 2004
in four equal quarterly installments and (z) 10% at final maturity in March
2005. The $400 million term loan will be amortized, beginning in September
2000, by (x) $2 million in 2000 in two equal quarterly installments, (y) $4
million in each of 2001, 2002, 2003, 2004 and 2005 in four equal quarterly
installments and (z) $378 million at final maturity n March 2006. The Credit
Agreement will also provide the Company the ability to increase the revolving
credit portion by $300 million to $800 million at any time prior to June, 2000
if the banks agree to increase their commitments.
Loans under both the revolving credit and term loan portions of the Credit
Facility will bear interest at either LIBOR plus an applicable margin or the
Alternate Base Rate plus an applicable margin. The applicable margin will be
based on a pricing grid to be determined by the Company's ratio of total debt
to EBITDA. The Company will also pay a commitment fee on the unused portion of
the revolving credit.
The funds raised will be used to retire substantially all of the existing
notes payable to Softbank and its affiliates of ZDI and ZDCF, and for the
purchase of certain assets from affiliated companies.
3. EMPLOYEE BENEFIT PLANS
1998 Incentive Compensation Plan
The Company adopted the 1998 Incentive Compensation Plan (the "Plan") to
provide long-term incentives for its key employees and enhance shareholder
value. The Plan provides for the issuance of up to 8,500,000 options, stock
appreciation rights, stock awards and other interests in the Company's Common
Stock. On February 13, 1998, the Company granted 5,254,700 options with an
exercise price of $16.00 per share representing the fair value of such options
at that date. Such options vest ratably over five years.
1998 Employee Stock Purchase Plan
The Company adopted the Employee Stock Purchase Plan (the "Stock Purchase
Plan") whereby eligible employees may purchase the Company's Common Stock with
after tax payroll deductions of 1% to 10% of their base pay. The price at
which shares of Common Stock will be purchased is the lesser of 85% of the
fair market value of a share of Common Stock on (i) the first business day of
a purchase period or (ii) the last business day of a purchase period. The
Company has reserved 1,500,000 shares of Common Stock for issuance under the
Stock Purchase Plan.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Ziff-Davis Inc. and ZD COMDEX and
Forums Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, cash flows and changes in stockholder's
equity, present fairly, in all material respects, the financial position of
Ziff-Davis Inc. and ZD COMDEX and Forums Inc. and their subsidiaries (the
"Companies") at December 31, 1997 and 1996, and the results of Ziff-Davis
Inc.'s operations and cash flows for the period from February 29, 1996 to
December 31, 1996 and for the year ended December 31, 1997 and the results of
ZD COMDEX and Forums Inc.'s operations and cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Companies' management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, NY
February 17, 1998
F-5
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 29,915 $ 30,301
Accounts receivable, net............................. 203,863 221,310
Inventories.......................................... 16,804 17,853
Prepaid expenses and other current assets............ 35,190 37,900
Due from affiliates.................................. 77,208 131,290
Deferred taxes....................................... 8,674 8,794
---------- ----------
Total current assets................................... 371,654 447,448
Property and equipment, net............................ 53,561 53,536
Intangible assets, net................................. 3,148,333 3,030,333
Other assets........................................... 10,625 15,329
---------- ----------
Total assets........................................... $3,584,173 $3,546,646
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................... $ 57,105 $ 55,468
Accrued expenses..................................... 79,921 80,094
Unearned income, net................................. 174,876 154,682
Due to affiliates and management..................... 69,416 398,332
Current portion of notes payable to affiliates....... 33,198 125,790
Other current liabilities............................ 3,890 4,222
---------- ----------
Total current liabilities.............................. 418,406 818,588
Notes payable to affiliates............................ 2,522,252 2,408,240
Deferred taxes......................................... 181,309 180,117
Other liabilities...................................... 14,450 13,571
---------- ----------
Total liabilities...................................... 3,136,417 3,420,516
---------- ----------
Commitments and contingencies (Notes 15, 16 and 18)
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares
authorized;
200 shares issued and outstanding................... -- --
Additional paid-in capital........................... 498,818 248,330
Accumulated deficit.................................. (48,250) (119,429)
Deferred compensation................................ (2,448) (996)
Cumulative translation adjustment.................... (364) (1,775)
---------- ----------
Total stockholder's equity............................. 447,756 126,130
---------- ----------
Total liabilities and stockholder's equity............. $3,584,173 $3,546,646
========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-6
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Revenue, net:
Publishing................................... $ -- $690,255 $ 866,233
Trade shows and conferences.................. 202,729 264,884 287,528
-------- -------- ----------
202,729 955,139 1,153,761
-------- -------- ----------
Cost of production:
Publishing................................... -- 184,159 225,712
Trade shows and conferences.................. 68,810 87,373 99,533
-------- -------- ----------
68,810 271,532 325,245
Selling, general and administrative expenses... 46,939 456,690 564,344
Depreciation and amortization of property and
equipment..................................... 1,412 32,303 30,379
Amortization of intangible assets.............. 22,893 107,433 124,561
-------- -------- ----------
Income from operations......................... 62,675 87,181 109,232
Related party interest expense, net............ (44,005) (120,646) (190,445)
Other non-operating income, net................ 4,199 6,341 8,722
-------- -------- ----------
Income (loss) before income taxes.............. 22,869 (27,124) (72,491)
Provision (benefit) for income taxes........... 11,924 24,957 (1,312)
-------- -------- ----------
Net income (loss).............................. $ 10,945 $(52,081) $ (71,179)
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-7
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------------
1995 1996 1997
--------- ----------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 10,945 $ (52,081) $(71,179)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization............. 24,305 139,736 154,940
Income from equity investments............ -- (115) (2,030)
Deferred tax provision (benefit).......... 11,924 24,957 (1,312)
Provision for bad debts, returns and can-
cellations............................... 662 14,475 13,616
Compensation earned on restricted stock... -- 1,080 3,916
Changes in operating assets and liabili-
ties:
Accounts receivable..................... (26,041) (52,561) (32,515)
Inventories............................. -- 7,788 (853)
Accounts payable and accrued expenses... 9,516 12,850 (7,376)
Unearned income......................... (3,153) 1,392 (20,194)
Due to affiliates and management........ (7,460) (29,303) (38,543)
Other, net.............................. 5,470 (6,675) (1,834)
--------- ----------- --------
Net cash provided (used) by operating
activities................................. 26,168 61,543 (3,364)
--------- ----------- --------
Cash flows from investing activities:
Capital expenditures........................ (3,367) (22,365) (30,196)
Acquisitions, net of cash acquired.......... (814,520) (2,124,823) (14,000)
--------- ----------- --------
Net cash used by investing activities....... (817,887) (2,147,188) (44,196)
--------- ----------- --------
Cash flows from financing activities:
Proceeds from notes payable to affiliates... 575,450 1,080,000 10,000
Principal payments on notes payable to af-
filiates................................... (77,450) -- (31,420)
Contributed capital......................... 317,408 1,015,652 69,366
Payment of dividends........................ -- (8,000) --
--------- ----------- --------
Net cash provided by financing activities... 815,408 2,087,652 47,946
--------- ----------- --------
Net increase in cash and cash equivalents... 23,689 2,007 386
Cash and cash equivalents at beginning of
year....................................... 4,219 27,908 29,915
--------- ----------- --------
Cash and cash equivalents at end of year.... $ 27,908 $ 29,915 $ 30,301
========= =========== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-8
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ZDI ZDCF ADDITIONAL RETAINED CUMULATIVE TOTAL
------------- ------------- PAID-IN EARNINGS DEFERRED TRANSLATION STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) COMPENSATION ADJUSTMENT EQUITY
------ ------ ------ ------ ---------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... -- $ -- 100 $ -- $ 62,178 $ 886 $ -- $ -- $ 63,064
Capital contribution
from Softbank.......... 317,408 317,408
Net income.............. 10,945 10,945
Foreign currency
translation adjustment. 111 111
--- ------ --- ------ ---------- --------- ------ ------- ----------
Balance at December 31,
1995................... -- -- 100 -- 379,586 11,831 -- 111 391,528
Acquisition of Ziff-
Davis Inc.............. 100 1,014,178 1,014,178
Return of capital ...... (899,948) (899,948)
Capital contribution.... 1,474 1,474
Dividend paid .......... (8,000) (8,000)
Shares contributed to
restricted stock plan.. 3,528 (3,528) --
Compensation earned on
restricted stock....... 1,080 1,080
Net loss................ (52,081) (52,081)
Foreign currency
translation adjustment. (475) (475)
--- ------ --- ------ ---------- --------- ------ ------- ----------
Balance at December 31,
1996................... 100 -- 100 -- 498,818 (48,250) (2,448) (364) 447,756
Return of capital ...... (381,434) (381,434)
Capital contribution ... 128,482 128,482
Shares contributed to
restricted stock plan.. 2,464 (2,464) --
Compensation earned on
restricted stock....... 3,916 3,916
Net loss................ (71,179) (71,179)
Foreign currency
translation adjustment. (1,411) (1,411)
--- ------ --- ------ ---------- --------- ------ ------- ----------
Balance at December 31,
1997................... 100 $ -- 100 $ -- $ 248,330 $(119,429) $ (996) $(1,775) $ 126,130
=== ====== === ====== ========== ========= ====== ======= ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-9
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
1. THE COMPANIES AND BASIS OF PRESENTATION
The combined financial statements include the accounts of ZDI (Ziff-Davis
Inc.) and ZDCF (ZD COMDEX and Forums, Inc.) and their subsidiaries and
predecessor companies (collectively the "Companies"). The Companies are
wholly-owned indirect subsidiaries of SOFTBANK Corp. ("Softbank"), a Japanese
corporation which, as of December 31, 1997, was 50.2% owned by Mr. Son, its
President, including 43.4% directly owned by his wholly-owned holding company,
MAC Inc. ( "MAC"), also a Japanese corporation.
As further described below, the combined financial statements include the
accounts of COMDEX (formerly Softbank COMDEX, Inc.) and ZDI as of their
respective acquisition dates and Forums (formerly Softbank Forums Inc.) for
all periods presented. Effective December 31, 1997, COMDEX and Forums merged
and the surviving company was renamed ZD COMDEX and Forums Inc.
The Companies operate in two business segments: (i) publishing and (ii)
trade shows and conferences.
Publishing
The publishing segment is engaged in publishing magazines, journals,
newsletters, electronic information products, training manuals and providing
market research about the computer industry. The publishing segment's
principal operations are in the United States and Europe, although it also
licenses or syndicates its editorial content to over 50 other publications
distributed worldwide.
Trade shows and conferences
The trade shows and conferences segment is engaged in the organization,
production and management of trade shows, conferences and seminars for the
computer industry. The trade shows and conferences segment's principal
operations are in the United States and to a lesser extent in Europe and Asia.
Acquisition of ZDI (formerly Ziff-Davis Publishing Company and Ziff-Davis
Holdings Corp.)
In February 1996, Softbank acquired the stock of Ziff-Davis Holdings Corp.
("Holdings") for an aggregate purchase price of approximately $1,800,000, plus
transaction costs. Concurrent with the acquisition, in a separate agreement,
MAC Inc., directly or through wholly-owned affiliates, acquired certain of the
assets and assumed certain of the liabilities of ZDI (the "MAC Assets") for an
aggregate purchase price of approximately $302,000.
The acquisitions of ZDI by the Companies and the MAC Assets by MAC Inc. have
been accounted for as of February 29, 1996 using the purchase method of
accounting. The excess of the purchase price over the fair value of the assets
acquired and liabilities assumed was $1,922,000 and $285,000, respectively.
Subsequent to the acquisition, Holdings and ZDI were merged with ZDI being
the surviving corporation.
F-10
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Unaudited summarized pro forma financial information
The following unaudited summarized pro forma financial information presents
the results of operations of the Companies as if the acquisition of ZDI had
taken place on January 1, 1995:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1996
-------- ----------
<S> <C> <C>
Revenue, net........................................... $971,724 $1,080,604
======== ==========
Income from operations................................. $ 80,113 $ 88,065
======== ==========
Net loss............................................... $(61,816) $ (67,011)
======== ==========
</TABLE>
The pro forma results include amortization of intangible assets and interest
expense on debt assumed issued to finance the purchase. The pro forma results
are not necessarily indicative of what actually would have occurred if the
acquisition had been completed as of the beginning of the year, nor are they
necessarily indicative of future combined results.
Purchase of MAC Assets
In 1997, ZDI agreed to purchase certain of the MAC Assets for $370,000. The
acquisition will be effected in two tranches; the first of which closed on
October 31, 1997 and the second, which is subject to the successful completion
of an initial public offering of ZD Inc.'s Common Stock (refer to Note 18) or
upon a similar significant external financing. At December 31, 1997, ZDI has
accrued the $370,000 purchase price which has been recorded as a return of
capital.
The acquisitions from MAC described above have been accounted for in a
manner similar to a pooling of interests as all entities involved are under
common control. Accordingly, the accompanying combined financial statements
include the results of operations of the MAC Assets from February 29, 1996.
Throughout these financial statements any reference to ZDI and ZDCF or the
Companies includes ZDI, ZDCF and the MAC Assets from February 29, 1996.
Acquisition of Sendai
On May 8, 1996, ZDI acquired substantially all of the assets and liabilities
of Sendai Publishing Group, Inc., a publisher and distributor of magazines,
books, products and computer services related to the electronic gaming
industry, for approximately $27,500, plus transaction costs. The acquisition
was accounted for as a purchase and accordingly, Sendai's results are included
in the combined financial statements since the date of acquisition. The excess
of the purchase price over assets acquired approximated $33,378. The
operations of Sendai did not have a material effect on the combined results of
operations for the year ended December 31, 1996.
Acquisition of COMDEX
Effective April 1, 1995, Softbank acquired the assets of the COMDEX trade
show business, now part of ZDCF, for approximately $803,000, plus transaction
costs. The acquisition has been accounted for as of April 1, 1995 using the
purchase method of accounting and accordingly COMDEX's results are included in
the combined financial statements since the date of acquisition. The excess of
the purchase price over the fair value of the assets acquired and liabilities
assumed was $849,000.
F-11
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the accounts of ZDI and ZDCF
including, as discussed above, the MAC Assets. All significant transactions
between these entities have been eliminated in combination.
Investments in companies in which ownership interests range from 20 to 50
percent and the Companies have the ability to exercise significant influence
over the operating and financial policies of such companies are accounted for
under the equity method.
Parent Company Financing
As described in Note 18, Softbank announced a Reorganization and a financing
plan which includes a recapitalization of the Companies' debt and equity
structures. Prior to the consummation of the recapitalization transactions,
the Companies are dependent on funding from Softbank. At December 31, 1997,
the Companies had current liabilities which exceeded current assets by
$371,140. To the extent that the Companies are unable to fund their current
obligations as they become due from their operating cash flows, Softbank has
committed to provide additional financing or to restructure existing loan
arrangements at least through February 1999.
Cash and cash equivalents
The Companies consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Concentration of credit risk
The Companies place its temporary cash investments with high credit quality
financial institutions. At times, such investments may be in excess of
federally insured limits. The Companies have not experienced losses in such
accounts.
The Companies' advertisers and exhibitors include principally customers who
represent a variety of technology companies in the United States and other
countries. The Companies extend credit to their customers and distributors and
historically have not experienced significant losses relating to receivables
from individual customers or groups of customers.
Property and equipment
Property and equipment have been recorded at cost or their estimated fair
value at the date of acquisition. Depreciation is computed using the straight-
line method over the estimated useful lives of the assets which range from
three to thirty years. Leasehold improvements are amortized using the
straight-line method over the service life of the improvement or the life of
the related lease, whichever is shorter. Maintenance and repair costs are
charged to expense as incurred.
Inventories
Inventories, which consist principally of paper, are stated at the lower of
cost or market. Cost is determined on a first-in, first-out basis.
Intangible assets
Intangible assets consist principally of advertising lists, exhibitor
relationships, trademarks and trade names, and goodwill. Amortization of these
assets is computed on a straight-line basis over their estimated useful lives.
Identifiable
F-12
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
intangible assets are amortized over a period of 2 to 40 years and goodwill,
which represents the excess of the purchase price over the estimated fair
values of net assets acquired, is amortized over a period of 5 to 40 years
(refer to Note 5). The Companies assess the recoverability of their intangible
assets whenever adverse events or changes in circumstances indicate that
expected future cash flows (undiscounted and without interest charges) may not
be sufficient to support the carrying amount of intangible assets. If
undiscounted cash flows are not sufficient to support the recorded assets, an
impairment is recognized to reduce the carrying value of the intangibles to
estimated recoverable values. The Companies have not experienced any
impairment of its intangible assets.
Revenue recognition
Advertising revenue for the Companies' publications, less agency
commissions, is recognized as income in the month that the related
publications are sent to subscribers or become available for sale at
newsstands.
Circulation revenue consists of both subscription revenue and single copy
newsstand sales. Subscription revenue, less estimated cancellations, is
deferred and recognized as income in the month that the related publications
are sent to subscribers. Newsstand sales, less estimated returns, are
recognized in the month that the related publications become available for
sale at newsstands.
Payments received in advance of trade shows, conferences and seminars are
initially reported on the balance sheet as deferred revenue and are recognized
as income when the events take place.
Revenue generated by market research is recognized when the service is
provided.
On-line revenue, predominantly advertising, is recognized evenly over the
period of the related advertising contract which corresponds to the period of
time the advertising is displayed.
Operating costs and expenses
Cost of production includes the direct costs of producing magazines,
newsletters and training materials, primarily paper, printing and
distribution, and the direct costs associated with organizing, producing and
managing trade shows, seminars, conferences and expositions. Selling, general
and administrative costs include subscriber acquisition costs which are
expensed as incurred. Editorial and product development costs are expensed as
incurred. Product development costs include the cost of artwork, graphics,
prepress, plates and photography for new products.
Foreign currency
The effect of translating foreign currency financial statements into U.S.
dollars is included in the cumulative translation adjustments account in
stockholder's equity. Gains and losses on foreign currency transactions, which
are not significant to operations, have been included in selling, general and
administrative expenses. The Companies have not historically entered into
forward currency contracts.
Other non-operating income
Other non-operating income includes management fee income and the Companies'
equity share of income or loss from joint ventures.
Income taxes
The Companies use the asset and liability approach for financial accounting
and reporting of deferred taxes.
F-13
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results may differ from these estimates.
Fair value of financial instruments
All current assets and liabilities are carried at cost, which approximates
fair value because of the short-term maturity of those instruments. The
recorded amounts of the Companies' long-term debt payable to affiliates also
approximate fair value based upon the current rates available to the Companies
for debt with similar remaining maturities.
Stock-based compensation
The Companies have elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," to account for stock options.
Effective January 1, 1996, the Companies adopted the disclosure-only
provisions of Statement of Financial Accounting Standard ("SFAS") No. 123,
"Accounting for Stock-Based Compensation."
Earnings per share
Historical earnings per share data have been omitted on the basis that they
are not meaningful due to the insignificant number of shares outstanding.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997, will
require the Companies to disclose, in financial statement format, all non-
owner changes in equity. Such changes include, for example, cumulative foreign
currency translation adjustments and unrealized gains and losses on securities
available for sale. This statement is effective for fiscal years beginning
after December 15, 1997 and requires presentation of prior period financial
statements for comparability purposes.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Generally, financial information will be required to be reported on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments.
SFAS No. 132, "Employer's Disclosure about Pensions and Other Post-
Retirement Benefits," is effective for the year ended December 31, 1998. This
standard revises the disclosure requirements for employers' pension and other
retiree benefits.
The Companies expect to adopt the above statements beginning with their 1998
financial statements.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Accounts receivable..................................... $284,829 $309,565
Allowance for doubtful accounts, returns and
cancellations.......................................... (80,966) (88,255)
-------- --------
$203,863 $221,310
======== ========
</TABLE>
F-14
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Computers and equipment.................................. $ 30,513 $ 50,170
Leasehold improvements................................... 38,439 40,033
Furniture and fixtures................................... 18,402 17,619
-------- --------
87,354 107,822
Accumulated depreciation and amortization................ (33,793) (54,286)
-------- --------
$ 53,561 $ 53,536
======== ========
</TABLE>
5. INTANGIBLE ASSETS, NET
Intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
RANGE OF DECEMBER 31,
USEFUL LIVES ----------------------
(YEARS) 1996 1997
------------ ---------- ----------
<S> <C> <C> <C>
Advertising lists....................... 7-34 $ 888,100 $ 888,100
Exhibitor relationships ................ 4-27 154,070 154,070
Trademarks/trade names.................. 30-40 735,595 735,595
License agreements...................... 6-14 11,212 11,212
Subscriber lists........................ 3-10 51,475 51,475
Other................................... 2-20 57,599 57,599
Goodwill................................ 5-40 1,380,993 1,387,556
---------- ----------
3,279,044 3,285,607
Accumulated amortization................ (130,711) (255,274)
---------- ----------
$3,148,333 $3,030,333
========== ==========
</TABLE>
Intangible assets primarily relate to the acquisitions of ZDI, COMDEX and
the MAC Assets. As discussed in Note 1, the acquisitions were accounted for
under the purchase method of accounting. As such, purchase price was allocated
to tangible and identifiable intangible assets with the remaining amount being
allocated to goodwill.
Advertising lists, exhibitor relationships and subscriber lists were
recorded at their estimated fair value as determined by an income approach.
Trademarks/trade names were recorded at their estimated fair value using a
relief from royalty approach.
All intangible assets are being amortized using the straight-line method
over their estimated useful lives, up to 40 years. In determining the
estimated useful lives, the Companies considered their competitive position in
the markets in which they operate, the historical attrition rates of
advertisers, subscribers and exhibitors, legal and contractual obligations,
and other factors.
Recoverability of goodwill and intangible assets is assessed at a minimum on
an annual basis. Impairments would be recognized in operating results if a
permanent diminution in value were to occur based upon an undiscounted cash
flow analysis.
F-15
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Payroll and related employee benefits....................... $24,978 $29,112
Accrued interest-related party.............................. 4,449 6,226
Other taxes payable......................................... 6,310 2,822
Other....................................................... 44,184 41,934
------- -------
$79,921 $80,094
======= =======
</TABLE>
7. UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Unexpired subscriptions.................................. $100,387 $ 82,167
Prepaid conference fees.................................. 91,776 80,706
Reserve for cancellations................................ (17,287) (8,191)
-------- --------
$174,876 $154,682
======== ========
</TABLE>
8. INCOME TAXES
The Companies have been included in consolidated U.S. federal income tax
returns filed by Softbank, except for operations relating to the MAC Assets
(described in Note 1), which were assets of a separate taxpayer. The tax
expense reflected in the combined statements of operations and tax liabilities
reflected in the combined balance sheet have been prepared on a separate
return basis as though the Companies filed stand-alone income tax returns. No
tax benefit has been recorded for the losses related to the MAC Assets, as
such losses are not available to the Companies.
The Companies and Softbank do not have a tax sharing agreement. Therefore,
no intercompany tax payments have been made and no related intercompany
receivable or payable has been recorded.
Income (loss) before income taxes is attributable to the following
jurisdictions:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
United States.................................. $ 25,094 $(22,095) $(74,638)
Foreign........................................ (2,225) (5,029) 2,147
-------- -------- --------
Total........................................ $ 22,869 $(27,124) $(72,491)
======== ======== ========
</TABLE>
Components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
U.S. federal income taxes:
Current............................................ $ -- $ -- $ --
Deferred........................................... 9,240 19,338 (1,017)
State and local income taxes:
Current............................................ -- -- --
Deferred........................................... 2,684 5,619 (295)
Foreign income taxes................................. -- -- --
------- ------- -------
Total provision (benefit) for income taxes....... $11,924 $24,957 $(1,312)
======= ======= =======
</TABLE>
F-16
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
A reconciliation of the U.S. federal statutory tax rate to the Companies'
effective tax rate on income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
---- ------ -----
<S> <C> <C> <C>
Federal tax rate....................................... 35.0% 35.0% 35.0%
State and local taxes (net of federal tax benefit)..... 6.0 6.0 6.0
Non-recognition of combined losses of MAC Assets....... 9.9 (116.6) (32.2)
Amortization of non-deductible goodwill................ 1.0 (13.1) (5.8)
Other.................................................. 0.2 (3.3) (1.2)
---- ------ -----
Effective tax rate..................................... 52.1% (92.0)% 1.8%
==== ====== =====
</TABLE>
The effective tax rate differs from the federal statutory tax rate primarily
as a result of the Companies' inability to deduct losses of the MAC Assets
prior to the effective date of the purchase. The amortization of nondeductible
goodwill resulted primarily from the stock acquisition of 100% of the stock of
ZDI in 1996.
Following is a summary of the components of the deferred tax accounts at
December 31, 1996 and December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax assets and (liabilities):
Allowance for bad debts............................. $ 8,825 $ 8,750
Other............................................... (151) 44
--------- ---------
Current deferred net tax assets................... 8,674 8,794
--------- ---------
Noncurrent deferred tax assets and (liabilities):
Basis difference in intangible assets............... (273,375) (288,286)
Net operating loss and other carryforwards.......... 129,798 133,314
Other............................................... 11,603 13,711
--------- ---------
Noncurrent deferred tax liabilities............... (131,974) (141,261)
Valuation allowance................................... (49,335) (38,856)
--------- ---------
Net noncurrent deferred tax liabilities........... (181,309) (180,117)
--------- ---------
Net deferred tax liabilities.......................... $(172,635) $(171,323)
========= =========
</TABLE>
As of December 31, 1996 and 1997 the Companies had total deferred tax assets
of $100,891 and $116,963, respectively, and total deferred tax liabilities of
$273,526 and $288,286, respectively. The December 31, 1996 and December 31,
1997 net deferred tax assets are reduced by a valuation allowance of $49,335
and $38,856, respectively, primarily relating to tax benefits of foreign net
operating loss carryforwards which are not expected to be realized. The
decrease in the valuation allowance in 1997 is primarily related to the
expiration of foreign net operating loss carryforwards. No deferred tax asset
has been established for the losses associated with the MAC Assets, which will
not be available to the Companies as a deduction.
The Companies have U.S. and foreign net operating loss carryforwards of
approximately $286,322, which will begin to expire in 1998. The Companies'
utilization of certain net operating loss carryforwards, of approximately
$122,549, is subject to limitations, due to the change of ownership resulting
from the Softbank
F-17
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
acquisition of the ZDI stock on February 29, 1996. Management believes that
such limitations will not significantly affect the Companies' ability to
recognize the deferred tax assets relating to the carryforward. Accordingly,
no valuation allowance to reduce the deferred tax asset relating to the
carryforward has been established. In addition, the Companies have alternative
minimum tax credit carryforwards of $385 which may be carried forward
indefinitely until used.
The Companies' foreign subsidiaries have no undistributed earnings for
remittance to the U.S. and, therefore, no U.S. or foreign tax provision on
remittances has been recorded.
9. DUE TO AFFILIATES AND MANAGEMENT
The Companies are members of a group of companies affiliated through common
ownership with Softbank and has various transactions and relationships with
members of the group. Because of these relationships, it is possible that the
terms of those transactions are not the same as those that would result from
transactions among unrelated parties.
Receivables/payables
Receivables from affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- --------
<S> <C> <C>
Receivable from:
MAC and subsidiaries...................................... $ 7,140 $ 42,687
Softbank.................................................. 67,451 84,365
Other affiliates.......................................... 2,617 4,238
------- --------
$77,208 $131,290
======= ========
</TABLE>
Payables to management and affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- --------
<S> <C> <C>
Payable to:
Management................................................ $29,834 $ --
MAC and subsidiaries...................................... -- 270,000
Softbank.................................................. 39,582 126,371
Other affiliates.......................................... -- 1,961
------- --------
$69,416 $398,332
======= ========
</TABLE>
See Note 18 for a discussion of the Companies' plan to restructure their
debt and equity structures.
As part of the 1996 acquisition of ZDI, the Companies agreed to assume
certain obligations to management arising out of prior employment arrangements
with previous owners. In January 1997, the Companies paid all amounts due,
including accrued interest, through the payment date.
Periodically, the Companies transfer excess cash to Softbank for cash
management purposes and in turn receive cash advances from Softbank to fund
the Companies' short-term working capital requirements. Interest is accrued
based on the net balance outstanding at the end of each month. Interest income
is earned at the 30-day LIBOR rate for the applicable month. Interest expense
is incurred at the 30-day LIBOR rate plus 0.5%.
F-18
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Other affiliated arrangements
During the years ended December 31, 1996 and 1997, the Companies incurred
$2,000 and $1,631, advertising expense with Yahoo!, Inc. (Yahoo!), an
affiliated company. No advertising expense with Yahoo! was incurred in 1995.
The Companies sell advertising space and exhibition services to Kingston
Technology Company ("Kingston"), an affiliated company. During the years ended
December 31, 1995, 1996 and 1997, the Companies recorded revenues of $0, $882
and $2,667, respectively, from sales to Kingston. These services were provided
under terms consistent with those provided to unaffiliated customers.
ZDCF has entered into an agreement to manage certain trade shows and
expositions owned by Softbank and its affiliates, whereby ZDCF earns
management and licensing fees. The fees earned by ZDCF for the years ended
December 31, 1995, 1996 and 1997 were $1,979, $3,394 and $4,057, respectively.
In 1996 and 1997, the Companies had an arrangement with SOFTBANK Interactive
Marketing ("SIM"), an affiliated company, for the provision of interactive
media sales. The Companies paid commissions to SIM of $600 and $1,800 during
the years ended December 31, 1996 and 1997, respectively. Effective December
31, 1997, SIM was acquired by an unrelated third party. Management believes
that the sale of SIM by Softbank will have no material impact on the
Companies.
The Companies have an arrangement with SOFTBANK Services, an affiliated
company, whereby the Companies are charged for administrative services
provided plus a management fee. For the years ended December 31, 1995, 1996
and 1997, the Companies incurred services fees of $0, $359 and $1,259,
respectively, in relation to this agreement.
ZDI has entered into certain licensing agreements with Softbank for the
publishing and distribution of Japanese language editions of certain
publications. The fees earned by ZDI for the years ended December 31, 1996 and
1997 were approximately $964 and $1,818, respectively, in each year.
The Companies have entered into a license and services agreement with MAC to
develop ZDTV: Your Computer Channel. ZDTV is owned by MAC, but as part of this
license and services agreement MAC has granted the Companies an option
exercisable through December 31, 1998 to purchase all of MAC's interest in
ZDTV for an amount equal to MAC's investment plus 10% per annum. The Companies
are currently funding ZDTV's operations on behalf of MAC through unsecured
advances which, for approved levels of expenditure, are to be reimbursed by
MAC. Such advances bear interest at the 30-day LIBOR rate plus .50%. The
Companies' cumulative advances, which totaled $14.4 million net of $10.1
million in repayments through December 31, 1997, will be repaid concurrently
with the Reorganization (See Note 18). The Companies have not yet determined
whether they will exercise the option to purchase MAC's interest in ZDTV. Any
such purchase will depend upon access to sufficient cable carriage, which may
include entering into a joint venture or other co-ownership arrangement,
including an arrangement with a third party cable system operator which will
provide carriage and also assume a portion of the ongoing cash requirements on
terms that are acceptable to the Companies. ZDTV is not included in the
Companies' financial statements.
If the Companies were to acquire a controlling interest in ZDTV from MAC,
such acquisition would be accounted for as a pooling transaction; if the
Companies were to acquire a non-controlling interest, such acquisition would
be accounted for under the equity method.
ZDI has entered into operating leases for television production equipment
and has sublet such equipment to ZDTV, an affiliated company. The terms of the
subleases are substantially identical to the terms of the leases which provide
for annual lease payments totaling approximately $610 through 2003.
F-19
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Notes payable to affiliates
The Company's long-term debt is payable to Softbank and consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Notes payable to affiliate(1)........................ $1,080,000 $1,080,000
Notes payable to affiliate(2)........................ 900,000 900,000
Notes payable to affiliate(3)........................ 398,000 375,027
Note payable to affiliate(4)......................... 100,000 94,231
Note payable to affiliate(5)......................... 77,450 74,772
Note payable to affiliate(6)......................... -- 10,000
---------- ----------
Total.............................................. 2,555,450 2,534,030
Less--Current portion................................ (33,198) (125,790)
---------- ----------
$2,522,252 $2,408,240
========== ==========
</TABLE>
- --------
(1) Principal and interest payments are due in 53 consecutive quarterly
installments on the last business day of each calendar quarter beginning
March 31, 1998 through March 31, 2011. The notes bear interest at a rate
of 7.8% per annum.
(2) These notes mature on December 31, 2001 and bear an interest rate of 6.5%
per annum, payable on the last business day of each quarter beginning
March 31, 1997.
(3) Notes mature on February 28, 2010. The notes bear interest at a rate of
8.0% per annum.
(4) Notes mature on February 28, 2009. The notes bear interest at 9.9% per
annum.
(5) Note is payable in 52 equal quarterly installments commencing March 31,
1997. The note bears interest at a rate of 8.0% per annum.
(6) Note is payable on January 1, 2007. The note bears interest at a rate of
8.0% per annum.
Scheduled principal payments due on long-term debt outstanding at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 125,790
1999.............................................................. 125,790
2000.............................................................. 125,790
2001.............................................................. 1,025,790
2002.............................................................. 125,790
Thereafter........................................................ 1,005,080
----------
Total........................................................... $2,534,030
==========
</TABLE>
See Note 18 for a discussion of the Companies' plan to restructure its debt
and equity structures.
Guarantee of Softbank's U.S. debt
In April 1996, Softbank signed a line of credit agreement totaling $50,000
with an independent lender for which the Companies, along with certain other
Softbank affiliates, are guarantors. In January 1997 and October 1997, this
line of credit was increased to $75,000 and $150,000, respectively. At
December 31, 1997, $102,500 was outstanding under the line of credit.
Return of capital and dividends
On December 15, 1996, the Companies declared a return of capital of
approximately $900,000 paid through the issuance of a note payable to a
subsidiary of Softbank and a cash dividend of $8,000 to Softbank. In 1997, the
Companies recorded a return of capital of $381,434 in connection with the
purchase price of companies under common control.
F-20
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
10. EMPLOYEE STOCK COMPENSATION PLANS
Executive stock option plan
The SOFTBANK 1996 and 1997 Executive Stock Option Plans provide for the
granting of nonqualified stock options to purchase the common stock of
Softbank to officers, directors and key employees of the Companies. Under the
plans, options have been granted at exercise prices equal to the closing
market price in Japan's public equities market (market price denominated in
Japanese yen) on the date of grant. As of December 31, 1997, substantially all
options granted become exercisable in various installments over the first six
anniversaries of the date of grant and expire ten years after the date of
grant.
Information relating to stock options during 1995, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OPTION PRICE
OF SHARES PER SHARE(1)
--------- ----------------
<S> <C> <C>
Shares outstanding under options at December
31, 1995 -- --
Granted........................................ 739,493(2) $87.15
Exercised...................................... -- --
Forfeited...................................... 12,740(2) 87.15
-------
Shares outstanding under options at December
31, 1996...................................... 726,753 87.15
Granted........................................ 386,363 61.40
Exercised...................................... -- --
Forfeited...................................... 146,130 78.88
-------
Shares outstanding under options at December
31, 1997...................................... 966,986 $78.11
=======
Shares exercisable
At December 31, 1996......................... -- --
At December 31, 1997 (price range $44.26-
$87.15)..................................... 107,630 $82.06
</TABLE>
- --------
(1) The exercise price of the stock options is set in Japanese yen. The
exercise prices as shown above have been converted to U.S. dollars based
upon the exchange rate as of the date of grant for the respective options.
(2) Adjusted for a 1.4:1 stock split during 1996 and a 1.3:1 stock split
during 1997.
As permitted by SFAS 123, the Companies have chosen to continue to account
for stock options in accordance with the provisions of APB 25 and,
accordingly, no compensation expense related to stock option grants was
recorded in 1996 or 1997. Pro forma information regarding net income is
required by SFAS 123 and has been determined as if the Companies had accounted
for stock options under the fair value method. The fair value of the option
grants was estimated at the date of grant using the Black Scholes option-
pricing model with the following assumptions for 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Risk-free interest rate.................................... 5.89% 6.35%
Dividend yield............................................. 0.26% 0.22%
Volatility factor.......................................... 54.03% 51.35%
Expected life.............................................. 6 years 6 years
</TABLE>
The weighted average fair value of options granted in 1996 and 1997 was
$64.30 and $34.05, respectively. For purposes of the pro forma disclosures,
the estimated fair value of the options is amortized to expense over
F-21
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
the options' vesting period. Had compensation cost for the stock option plans
been determined based upon the fair value at the grant date for awards during
1996 and 1997, consistent with the provisions of SFAS 123, the Companies' net
loss would have been increased by approximately $3,100 and $4,200,
respectively. On January 23, 1998, the exercise price of all of the shares
outstanding under option agreements were reset to an exercise price equal to
the closing market price on Japan's Tokyo Stock Exchange First Section at that
date. In conjunction with the repricing, those options previously exercisable
on December 31, 1997 may now be exercised only after July 19, 1998. Repricing
of the stock options will not result in compensation expense to the Companies.
Other stock compensation plans
During 1996 and 1997, the Company granted 45,760 and 61,940 shares of common
stock of Softbank, respectively, (adjusted for two 1.4:1 stock splits during
1996 and a 1.3:1 stock split during 1997) to certain key employees, subject to
restrictions as to continuous employment which expire over a three to five-
year period from the date of grant. The granting of the shares to the
Companies' employees has been recorded as additional paid-in capital offset by
a reduction to stockholder's equity as deferred compensation. Such amounts
were recorded at the fair value, as established by market price of the shares
on the date of grant. The unearned compensation is being amortized ratably
over the restricted periods. During 1996, restrictions on 13,790 shares
expired, 2,160 shares were forfeited and $1,080 was charged to expense related
to the restricted stock awards. During 1997, restrictions on 75,210 shares
expired, 2,150 shares were forfeited and $3,916 was charged to expense related
to these restricted stock awards.
11. EMPLOYEE BENEFIT PLANS
Pension plan
Certain employees of ZDCF who have met eligibility requirements are covered
by a noncontributory defined benefit pension plan. The benefits are based on
years of service and average compensation at the time of retirement. The
Companies' funding policy is to contribute amounts sufficient to meet the
minimum funding requirements as set forth in the Employee Retirement Income
Security Act of 1974 ("ERISA"). Contributions to the plan are determined in
accordance with the projected unit credit cost method. Plan assets consist of
U.S. equity securities, high grade corporate bonds and commercial paper, and
U.S. treasury notes.
The weighted average assumed discount rate of 7% and rate of increase in
future compensation levels of 6% was used in the determination of the
actuarial present value of the projected benefit obligation at December 31,
1996 and 1997. The weighted average expected long-term rate of return on plan
assets at December 31, 1996 and 1997 was 7%.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ -----
<S> <C> <C> <C>
Service cost........................................... $ 472 $ 700 $ 391
Interest cost.......................................... 363 472 456
Expected return on plan assets......................... (172) (300) (445)
Amortization of transition obligation.................. 149 199 75
----- ------ -----
Net periodic pension cost.............................. $ 812 $1,071 $ 477
===== ====== =====
</TABLE>
F-22
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
The following table sets forth the funded status and amounts recognized in
the balance sheet:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $ 4,132 $ 5,721
======= =======
Accumulated benefit obligations......................... 4,224 5,721
======= =======
Projected benefit obligations............................. 7,967 5,721
Plan assets at fair value................................. (4,467) (6,004)
------- -------
Projected benefit obligation in excess (less than) of plan
assets................................................... 3,500 (283)
Unrecognized net transition asset (liability)............. (2,297) 1,279
------- -------
Pension liability included in balance sheet............... $ 1,203 $ 996
======= =======
</TABLE>
During 1997, the Companies decided to terminate the defined benefit pension
plan and pursuant to this decision, all accrued benefits became fully vested
as of August 31, 1997. The above amounts reflect the effects of such
termination. All accrued plan obligations will be settled during 1998. There
was no significant gain or loss recognized in connection with the termination.
Any gain or loss associated with the plan settlement will be recognized in
1998.
Retirement plans
The Companies maintain various defined contribution retirement plans.
Substantially all of the Companies' employees are eligible to participate in
one of the plans under which annual contributions may be made by the Companies
for the benefit of all eligible employees. In certain cases, employees may
also make contributions to the plan in which they participate which, and
subject to certain limitations, may be matched by the Companies up to certain
specified percentages. Employees are generally eligible to participate in a
plan upon joining the Companies and receive matching contributions after one
year of employment. The Companies made contributions to the plans totaling
$2,115, $10,470 and $13,725 in 1995, 1996 and 1997, respectively.
12. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
The Companies have investments in the following companies/joint ventures:
<TABLE>
<CAPTION>
COMPANY/ CARRYING VALUE AT
JOINT VENTURE DECEMBER 31,
------------- OWNERSHIP -----------------
PERCENTAGE 1996 1997
---------- -------- --------
<S> <C> <C> <C>
Mac Publishing LLC............................. 50% $ -- $ 16,244
ExpoComm LLC................................... 50% $ 7,698 $ 7,758
Family PC G.P. ................................ 50% $ 10,138 $ 9,342
</TABLE>
The companies/joint ventures listed above are engaged primarily in the
publication or distribution of print media and the organization, production
and management of trade shows. Other investments and joint ventures are not
material to the Companies' financial statements.
The Companies equity income (loss) was $0, $(796) and $335 in 1995, 1996 and
1997, respectively.
F-23
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
13. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest to related parties.................. $ 8,390 $ 99,509 $185,447
Income taxes................................. -- 360 4
Noncash investing and financing activities:
Fair value of assets acquired................ $836,479 $2,508,603 $ 20,749
Liabilities assumed.......................... 21,959 370,518 6,749
-------- ---------- --------
Cash paid.................................... 814,520 2,138,085 14,000
Less--Cash acquired.......................... -- 13,262 --
-------- ---------- --------
Net cash paid for acquisitions............... $814,520 $2,124,823 $ 14,000
======== ========== ========
Return of capital dividends.................. $ -- $ 899,948 $381,434
======== ========== ========
Capital contributions........................ $ -- $ 5,002 $ 61,580
======== ========== ========
</TABLE>
14. STOCKHOLDER'S EQUITY
The Companies' issued and outstanding Common Stock consists of 100 shares of
ZDI and 100 shares of ZDCF. Such shares provide the holder with identical
rights in corporate matters.
15. OPERATING LEASE COMMITMENTS
The Companies are obligated under various operating leases which expire at
various dates through 2021. Future minimum rental commitments under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 34,912
1999................................................................ 32,702
2000................................................................ 28,875
2001................................................................ 25,891
2002................................................................ 24,932
Thereafter.......................................................... 248,407
--------
Total........................................................... $395,719
========
</TABLE>
Netted in the above totals is approximately $5,000 for which ZDI has
noncancelable subleases in place. Total sublease income approximates ZDI's
required payments under the related leases. Rent expense amounted to
approximately $2,492, $23,015 and $29,994 for the years ended December 31,
1995, 1996 and 1997, respectively.
16. CONTINGENCIES
The Companies are subject to various claims and legal proceedings arising in
the normal course of business. Management believes that the ultimate
liability, if any, in the aggregate will not be material to the consolidated
balance sheet, future operations or cash flows.
F-24
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
17. SEGMENT INFORMATION
Business segment information
The Companies' operations have been classified into two business segments:
(i) publishing and (ii) trade shows and conferences.
Publishing
The publishing segment is engaged in publishing magazines, journals,
newsletters, electronic information products, training manuals and providing
market research about the computer industry. The publishing segment's
principal operations are in the United States and Europe, although it also
licenses or syndicates its editorial content to over 50 other publications
distributed worldwide.
Trade shows and conferences
The trade shows and conferences segment is engaged in the organization,
production and management of trade shows, conferences and seminars for the
computer industry. The trade shows and conferences segment's principal
operations are in North America and to a lesser extent in Europe, Asia and
Latin America.
Summarized financial information by business segment as of December 31,
1995, 1996 and 1997 and for each of the years then ended is set forth below:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue, net:
Publishing............................... $ -- $ 690,255 $ 866,233
Trade shows and conferences.............. 202,729 264,884 287,528
---------- ---------- ----------
$ 202,729 $ 955,139 $1,153,761
========== ========== ==========
Income from operations:
Publishing............................... $ -- $ 18,676 $ 49,997
Trade shows and conferences.............. 62,675 68,505 59,235
---------- ---------- ----------
$ 62,675 $ 87,181 $ 109,232
========== ========== ==========
Total assets at December 31:
Publishing............................... $ -- $2,440,651 $2,422,360
Trade shows and conferences.............. 1,090,981 1,143,522 1,124,286
---------- ---------- ----------
$1,090,981 $3,584,173 $3,546,646
========== ========== ==========
Depreciation and amortization:
Publishing............................... $ -- $ 106,587 $ 118,814
Trade shows and conferences.............. 24,305 33,149 36,126
---------- ---------- ----------
$ 24,305 $ 139,736 $ 154,940
========== ========== ==========
Capital expenditures:
Publishing............................... $ -- $ 14,657 $ 21,399
Trade shows and conferences.............. 3,367 7,708 8,797
---------- ---------- ----------
$ 3,367 $ 22,365 $ 30,196
========== ========== ==========
</TABLE>
Operating income by business segment excludes interest income and interest
expense.
F-25
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNITED STATES OTHER AREAS COMBINED
Geographic Segment Information ------------- ----------- ----------
Year ended December 31, 1995:
<S> <C> <C> <C>
Revenue, net............................. $ 192,789 $ 9,940 $ 202,729
========== ======== ==========
Income (loss) from operations............ $ 64,930 $ (2,255) $ 62,675
========== ========
Other non-operating income............... 4,199
Related party-interest expense........... 44,005
----------
Income before taxes...................... $ 22,869
==========
Total assets at December 31, 1995........ $1,081,829 $ 9,152 $1,090,981
========== ======== ==========
Year ended December 31, 1996:
Revenue, net............................. $ 854,666 $100,473 $ 955,139
========== ======== ==========
Income (loss) from operations............ $ 92,210 $ (5,029) $ 87,181
========== ========
Other non-operating income............... 6,341
Related party-interest expense........... 120,646
----------
Loss before taxes........................ $ (27,124)
==========
Total assets at December 31, 1996........ $3,549,102 $ 35,071 $3,584,173
========== ======== ==========
Year ended December 31, 1997:
Revenue, net............................. $1,040,297 $113,464 $1,153,761
========== ======== ==========
Income from operations................... $ 107,085 $ 2,147 $ 109,232
========== ========
Other non-operating income............... 8,722
Related party-interest expense........... 190,445
----------
Loss before taxes........................ $ (72,491)
==========
Total assets at December 31, 1997........ $3,500,945 $ 45,701 $3,546,646
========== ======== ==========
</TABLE>
Transactions between geographic areas are not significant.
F-26
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
18. SUBSEQUENT EVENTS (UNAUDITED)
Reorganization of the Companies
In February 1998, Softbank announced a reorganization of the Companies (the
"Reorganization"). In connection with the Reorganization, Softbank will
contribute the common stock of ZDI and ZDCF to a newly formed company in
exchange for a majority of the new company's common stock, the balance of
which will be offered to the public. In addition, approximately $928 million
of obligations owed to Softbank will be converted to equity, approximately
$1.5 billion of notes payable to affiliates will be refinanced, the $370
million obligation for the purchase of the MAC Assets will be paid and
balances totaling approximately $42 million due from MAC will be settled. The
Reorganization is contingent upon the successful completion of the public
stock offering and refinancing of the notes payable to affiliates.
Guarantee of Softbank's U.S. Debt
In March 1998, the Company increased its guarantee of Softbank's U.S. debt
from $150 million to $450 million.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Ziff-Davis Inc., (formerly Ziff-Davis Publishing Company)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and changes in stockholder's
equity, present fairly, in all material respects, the financial position of
Ziff-Davis Inc. and its subsidiaries (formerly Ziff-Davis Publishing Company
or the "Company") at December 31, 1995 and February 28, 1996, and the results
of their operations and their cash flows for the year ended December 31, 1995
and for the period from January 1, 1996 to February 28, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 16 to the financial statements, the Company was acquired
by SOFTBANK Holdings Inc. on February 29, 1996.
PRICE WATERHOUSE LLP
New York, NY
February 17, 1998
F-28
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 10,083 $ 13,669
Accounts receivable, net........................... 113,078 116,075
Inventories........................................ 21,825 26,009
Deferred taxes..................................... 22,129 23,570
Prepaid postage and other current assets........... 16,621 16,852
---------- ----------
Total current assets................................. 183,736 196,175
Property and equipment, net.......................... 64,110 58,589
Intangible assets, net............................... 1,348,064 1,338,684
Deferred charges and other assets.................... 27,996 26,457
---------- ----------
Total assets......................................... $1,623,906 $1,619,905
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................... $ 56,488 $ 43,795
Accrued expenses................................... 68,814 78,333
Unexpired subscriptions, net....................... 81,737 86,435
Due to management and affiliates................... 58,480 58,762
Current portion of long-term debt.................. 6,847 6,847
Other current liabilities.......................... 2,048 2,733
---------- ----------
Total current liabilities............................ 274,414 276,905
Deferred taxes....................................... 11,822 10,815
Long-term debt....................................... 439,153 439,153
Subordinated debentures--related party............... 525,000 525,000
Other long-term liabilities.......................... 8,367 7,315
---------- ----------
Total liabilities.................................... 1,258,756 1,259,188
---------- ----------
Commitments and contingencies (Notes 14, 15 and 16)
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares autho-
rized;
100 shares issued and outstanding................. -- --
Additional paid-in capital......................... 391,275 391,275
Accumulated deficit................................ (26,002) (30,549)
Cumulative translation adjustment.................. (123) (9)
---------- ----------
Total stockholder's equity........................... 365,150 360,717
---------- ----------
Total liabilities and stockholder's equity........... $1,623,906 $1,619,905
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-29
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ---------------
<S> <C> <C>
Revenue, net...................................... $768,995 $125,465
Cost of production................................ 193,646 31,112
Selling, general and administrative expenses...... 428,053 71,946
Depreciation and amortization of property and
equipment........................................ 37,160 6,073
Amortization of intangible assets................. 54,386 9,064
-------- --------
Income from operations.......................... 55,750 7,270
Interest expense, net............................. (92,609) (14,030)
Equity in losses of joint ventures................ 3,391 235
-------- --------
Loss before income taxes........................ (40,250) (6,995)
Income tax benefit................................ (14,248) (2,448)
-------- --------
Net loss.......................................... $(26,002) $ (4,547)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (26,002) $ (4,547)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................. 91,546 15,137
Loss from equity investments.................. 3,391 235
Provisions for bad debts, allowances and
cancellations................................ 14,097 3,014
Deferred tax benefit.......................... (14,248) (2,448)
Changes in operating assets and liabilities:
Accounts receivable......................... (26,956) (6,011)
Inventories................................. (9,014) (4,184)
Accounts payable and accrued expenses....... 8,136 (3,174)
Unexpired subscriptions, net................ 2,499 4,698
Due to management and affiliates............ (3,020) 282
Other, net.................................. (3,366) 1,136
----------- --------
Net cash provided by operating activities....... 37,063 4,138
----------- --------
Cash flows from investing activities:
Capital expenditures.......................... (14,163) (552)
Proceeds from sale of businesses.............. 23,508 --
----------- --------
Net cash provided (used) by investing
activities..................................... 9,345 (552)
----------- --------
Cash flows from financing activities:
Borrowings under revolving credit facility.... 80,625 24,335
Repayment of revolving credit facility........ (60,625) (24,335)
Repayment of acquisition indebtedness......... (1,122,931) --
----------- --------
Net cash used by financing activities........... (1,102,931) --
----------- --------
Net (decrease)/increase in cash and cash
equivalents.................................... (1,056,523) 3,586
Cash and cash equivalents at beginning of
period......................................... 1,066,606 10,083
----------- --------
Cash and cash equivalents at end of period...... $ 10,083 $ 13,669
=========== ========
Supplemental cash flow disclosures:
Interest paid................................. $ 78,811 $ 29,255
Income taxes paid............................. $ 92,729 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------- PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
------ ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 100 $ -- $391,275 $ -- $ -- $391,275
Net loss................ -- -- -- (26,002) -- (26,002)
Foreign currency
translation adjustment. -- -- -- -- (123) (123)
--- ----- -------- -------- ----- --------
Balance at December 31,
1995................... 100 -- 391,275 (26,002) (123) 365,150
Net loss................ -- -- -- (4,547) -- (4,547)
Foreign currency
translation adjustment. -- -- -- -- 114 114
--- ----- -------- -------- ----- --------
Balance at February 28,
1996................... 100 $ -- $391,275 $(30,549) $ (9) $360,717
=== ===== ======== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
1. ORGANIZATION AND ACQUISITION
Ziff-Davis Inc. ("ZDI," formerly Ziff-Davis Publishing Company) is a wholly-
owned subsidiary of Ziff-Davis Holdings Corp. ("Holdings").
ZDI is engaged in publishing magazines, journals and training manuals and
providing market research about the computer industry, with operations in the
United States, Canada and Europe.
Acquisition
Effective January 1, 1995, Holdings, through ZDI, directly and indirectly
acquired certain assets and assumed certain liabilities of the Ziff-Davis
publishing business and related businesses (the "Acquisition" or the "Acquired
Businesses") from Ziff Communications Company, L.P., a limited partnership
("ZCC") and other persons and entities (collectively referred to as the
"Sellers"), for an aggregate purchase price of approximately $1,400,000 plus
transaction costs. ZDI funded the Acquisition through the issuance of Common
Stock, bank borrowings and a subordinated note payable to Holdings.
The acquisition has been accounted for using the purchase method of
accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of ZDI and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Investments in companies in which ownership interests range from 20 to 50
percent are accounted for under the equity method. ZDI has an equity
investment interest in Family PC G.P. of 50%. The equity investment in Family
PC G.P. is not material to ZDI's consolidated financial statements.
Cash and cash equivalents
ZDI considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Concentration of credit risk
ZDI places its temporary cash investments with high credit quality financial
institutions. At times, such investments may be in excess of federally insured
limits. ZDI has not experienced losses in such accounts.
ZDI's advertisers include customers who represent a variety of technology
companies in the United States and other countries. ZDI extends credit to its
customers and historically has not experienced significant losses relating to
receivables from individual customers or groups of customers.
Property and equipment
Property and equipment have been recorded at their estimated fair value at
the date of acquisition. Depreciation is computed using the straight-line
method over the estimated useful lives of the acquired assets, ranging from 3
to 39 years. Leasehold improvements are amortized using the straight-line
method over the service life of the improvement or the life of the related
lease, whichever is shorter. Maintenance and repair costs are charged to
expense as incurred.
F-33
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Paper inventories
Paper inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
Intangible assets
Intangible assets consist principally of advertising lists, trademarks and
trade names and goodwill. Amortization of these assets is computed on a
straight-line basis over their estimated useful lives. Identifiable intangible
assets are amortized over a period of 2 to 39 years and goodwill, which
represents the excess of the purchase price over the estimated fair values of
net assets acquired, is amortized over 40 years. ZDI assesses the
recoverability of its intangible assets whenever adverse events or changes in
circumstances indicate that expected future cash flows (undiscounted and
without interest charges) may not be sufficient to support the carrying amount
of intangible assets. If undiscounted cash flows are not sufficient to support
the recorded assets, an impairment loss is recognized to reduce the carrying
value of the intangibles to its estimated recoverable value.
Revenue recognition
Advertising revenue for ZDI's publications, less agency commissions, is
recognized as income in the month that the related publications are sent to
subscribers or becomes available for sale at newsstands.
Circulation revenue consists of both subscription and single copy newsstand
sales. Subscription revenue, less estimated cancellations, is deferred and
recognized as income in the month that the related publications are sent to
subscribers. Newsstand sales, less estimated returns, are recognized in the
month that the related publications become available for sale at newsstands.
Revenue generated by market research is recognized when the service is
provided.
Operating costs and expenses
Cost of production includes paper, manufacturing, distribution and
fulfillment. Selling and promotion costs include subscriber acquisition costs
which are expensed as incurred. Editorial and product development costs are
generally expensed as incurred. Product development costs include the cost of
artwork, graphics, prepress, plates and photography for new products.
Foreign currency
Gains and losses on foreign currency transactions, which are not
significant, have been included in selling, general and administrative
expenses. The effect of translation of foreign currency financial statements
into U.S. dollars is included in the cumulative translation adjustments
account in stockholder's equity.
Income taxes
ZDI uses the asset and liability approach for financial accounting and
reporting of deferred taxes.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results may differ from these estimates.
F-34
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Fair value of financial instruments
All current assets and liabilities are carried at cost, which approximates
fair value because of the short-term maturity of those instruments. The
recorded amounts of ZDI's long-term debt also approximate fair value which was
based upon the current rates available to ZDI for debt with similar remaining
maturities.
Impairment of long-lived assets
In 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"). ZDI adopted SFAS 121 in fiscal 1996 with no
effect on operations.
Earnings per share
Historical earnings per share data has been omitted on the basis that it is
not meaningful due to the insignificant number of shares outstanding.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Accounts receivable............................... $168,961 $166,036
Allowance for doubtful accounts, returns and
cancellations.................................... (55,883) (49,961)
-------- --------
$113,078 $116,075
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Computers and equipment............................ $ 55,838 $ 56,390
Leasehold improvements............................. 25,999 25,999
Furniture and fixtures............................. 12,404 12,404
Other.............................................. 7,029 7,029
-------- --------
101,270 101,822
Accumulated depreciation and amortization.......... (37,160) (43,233)
-------- --------
$ 64,110 $ 58,589
======== ========
</TABLE>
F-35
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
5. INTANGIBLE ASSETS, NET
Intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
RANGE OF
LIVES DECEMBER 31, FEBRUARY 28,
(YEARS) 1995 1996
-------- ------------ ------------
<S> <C> <C> <C>
Advertiser lists.......................... 7-39 $ 645,800 $ 645,800
Trademarks and trade names................ 30 235,820 235,820
Subscriber lists.......................... 3-10 47,436 47,436
Other..................................... 2-5 28,800 28,800
License agreements........................ 6-14 11,211 11,211
Goodwill.................................. 40 433,383 433,067
---------- ----------
1,402,450 1,402,134
Accumulated amortization.................. (54,386) (63,450)
---------- ----------
$1,348,064 $1,338,684
========== ==========
</TABLE>
Intangible assets primarily relate to the acquisition of ZDI. As discussed
in Note 1, the acquisition was accounted for under the purchase method of
accounting. As such the purchase price was allocated to tangible and
identifiable intangible assets with the remaining amount allocated to
goodwill.
Advertising lists, exhibitor relationships and subscriber lists were
recorded at their estimated fair value as determined by an "income" approach.
Trademarks/trade names were recorded at their estimated fair value using a
"relief from royalty" approach.
All intangible assets are being amortized using the straight-line method
over their estimated useful lives, up to 40 years. In determining the
estimated useful lives, ZDI considered its competitive position in the markets
in which it operates, the historical attrition rates of advertisers,
exhibitors and subscribers, legal and contractual obligations, and other
factors.
Recoverability of goodwill and intangible assets is assessed at a minimum on
an annual basis. Impairments would be recognized in operating results if a
permanent diminution in value were to occur based upon an undiscounted cash
flow analysis.
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Payroll and related employee benefits.............. $35,044 $35,152
Accrued interest................................... 16,804 27,526
Other taxes payable................................ 1,588 2,576
Other accrued expenses............................. 15,378 13,079
------- -------
$68,814 $78,333
======= =======
</TABLE>
F-36
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
7. INCOME TAXES
Loss before income taxes is attributable to the following jurisdictions:
<TABLE>
<CAPTION>
YEAR JANUARY 1
ENDED TO
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
United States...................................... $(31,114) $(4,757)
Foreign............................................ (9,136) (2,238)
-------- -------
Total............................................ $(40,250) $(6,995)
======== =======
</TABLE>
Components of the income tax benefit are as follows:
<TABLE>
<CAPTION>
YEAR JANUARY 1
ENDED THROUGH
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
U.S. federal income taxes:
Current.......................................... $ -- $ --
Deferred......................................... (11,040) (1,897)
State and local income taxes:
Current.......................................... -- --
Deferred......................................... (3,208) (551)
Foreign income taxes............................... -- --
-------- -------
Total income tax benefit....................... $(14,248) $(2,448)
======== =======
</TABLE>
A reconciliation of the U.S. federal statutory tax rate to ZDI's effective
tax rate on loss before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR JANUARY 1
ENDED TO
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Federal tax at 35%................................ 35.0% 35.0%
State and local taxes (net of federal tax bene-
fit)............................................. 6.0 6.0
Foreign losses.................................... (2.5) (2.5)
Amortization of nondeductible goodwill............ (1.3) (1.2)
Other nondeductible expenses...................... (1.8) (2.3)
---- ----
Effective tax rate.............................. 35.4% 35.0%
==== ====
</TABLE>
F-37
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Following is a summary of the components of the deferred tax accounts at
December 31, 1995 and February 28, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Current deferred tax assets:
Allowance for bad debts......................... $ 8,396 $ 8,535
Employee compensation, bonus, and vacation...... 12,248 12,687
Other........................................... 1,485 2,348
-------- --------
Current deferred tax assets................... 22,129 23,570
-------- --------
Noncurrent deferred tax assets and (liabilities):
Basis difference in intangible assets........... (69,271) (71,589)
Basis difference in property and equipment...... (3,378) (1,863)
Deferred rental expense......................... 3,285 3,139
Net operating loss carryforwards................ 102,165 103,954
Acquisition reserves............................ 2,773 2,756
Other........................................... (220) (36)
-------- --------
Gross noncurrent deferred tax assets.......... 35,354 36,361
Valuation allowance............................. (47,176) (47,176)
-------- --------
Net noncurrent deferred tax liabilities....... (11,822) (10,815)
-------- --------
Total net deferred tax assets..................... $ 10,307 $ 12,755
======== ========
</TABLE>
As of December 31, 1995 and February 28, 1996, ZDI had total deferred tax
assets of $83,176 and $86,243, respectively, and total deferred tax
liabilities of $72,869 and $73,488, respectively.
As of February 28, 1996, ZDI has U.S. and foreign net operating loss
carryforwards of approximately $244,172, which will begin to expire on
December 31, 1996. The December 31, 1995 and the February 28, 1996 net
deferred tax asset is reduced by a valuation allowance of $47,176 relating to
tax benefits of foreign net operating loss carryforwards which are not
expected to be recognized.
ZDI's foreign subsidiaries have no undistributed earnings for remittance to
the U.S. and therefore no U.S. or foreign tax provision on remittances has
been recorded.
8. DUE TO MANAGEMENT AND AFFILIATES
Payables to management and affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Payable to:
Management....................................... $28,161 $28,443
Sellers.......................................... 21,500 21,500
Holdings......................................... 8,819 8,819
------- -------
$58,480 $58,762
======= =======
</TABLE>
F-38
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
As part of the Acquisition, ZDI agreed to assume certain obligations to
management arising out of prior employment arrangements. Approximately $40,000
was due under these arrangements, of which approximately $12,000 was paid in
1995. The balance of the obligation, including accrued interest, was paid in
1997.
Amounts due to sellers represent final amounts payable related to the
Acquisition.
9. LONG-TERM DEBT
Long-term debt at December 31, 1995 and February 28, 1996 is comprised of
the following:
<TABLE>
<S> <C>
Bank debt:
Tranche A........................................................ $ 86,604
Tranche B........................................................ 179,479
Tranche C........................................................ 159,917
Revolving credit arrangement..................................... 20,000
--------
446,000
Less--Current portion.............................................. (6,847)
--------
$439,153
========
</TABLE>
On December 21, 1994, ZDI borrowed $515,000 under the terms of a Credit
Agreement. The proceeds of the loan were used to finance a portion of the
Acquisition and pay certain transaction costs.
Tranche A, as amended on August 31, 1995, is a six-year term loan due
quarterly in varying amounts from September 30, 1995 through December 31,
2000. Tranche B is a seven-year term loan due quarterly in varying amounts
commencing September 30, 1995 through September 30, 2001, with a final payment
of $126,000 on December 31, 2001. Tranche C is an eight-year term loan
providing for quarterly payments, aggregating $1,000 per calendar year
commencing September 30, 1995 through December 31, 2001, followed by four
quarterly payments of $39,500 through December 31, 2002.
The Credit Agreement also provides ZDI with an additional $85,000, increased
to $150,000 under terms of the August 31, 1995 amendment, under a revolving
credit arrangement through December 31, 2000. These funds are available for
loans, letters of credit, and swing-line loans, subject to certain maximum
levels of borrowing. At least once during each year, for a period of 30
consecutive days, the loans outstanding under the revolving credit facility
must be reduced so that the aggregate outstanding amount does not exceed
$130,000 during such 30-day period. The commitment fee for the revolving
credit facility is .50% during 1995 and 1996 on the unused portion of the
facility. ZDI has the option to permanently reduce the amount available for
borrowings under the revolving credit facility by a minimum of $5,000 at any
time. At December 31, 1995 and February 28, 1996, $130,000 under the revolving
credit facility is available for borrowing.
During 1995 and the period January 1, 1996 to February 28, 1996, the Tranche
A and revolving credit loans bore interest, payable at least quarterly, at
either the Average Bank Rate ("ABR"), as defined, plus 1.25%, or at the
Eurodollar rate, plus 2.5% at the election of ZDI. Tranche B and C loans bore
interest, payable at least quarterly, at either the ABR, plus 1.75% and 2.25%,
respectively, or at the Eurodollar rate, as defined, plus 3% and 3.5%,
respectively, at the election of ZDI. Swing-line loans bear interest at the
ABR, plus the applicable margins as discussed above. Borrowings outstanding at
December 31, 1995 and February 28, 1996 were $446,000 and the weighted average
interest rate was 8.8% and 10.1%, respectively.
F-39
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
ZDI is required to comply with various restrictive covenants, including
maintaining certain financial ratios, restrictions on additional indebtedness,
capital expenditures, acquisitions, certain asset sales, declaration of
dividends and acquisition of ZDI's or Holdings' Common Stock. All borrowings
under the Credit Agreement are secured by the common stock and other equity
interests of ZDI and its wholly-owned subsidiaries.
ZDI is required to make mandatory prepayments of the loans with the net
proceeds of certain asset sales and debt issuances, if any. ZDI is also
required, commencing with the year ending December 31, 1995, to prepay the
loans with a portion of excess cash flow, as defined, once certain cash
balances are achieved. These cash balances were not achieved during 1995 or
for the period from January 1, 1996 to February 28, 1996 and therefore no
prepayments occurred.
Scheduled principal payments for each of the next five years are as follows:
<TABLE>
<S> <C>
1996................................................................ $ 6,847
1997................................................................ 13,518
1998................................................................ 21,524
1999................................................................ 23,658
2000................................................................ 52,795
Thereafter.......................................................... 327,658
--------
Total............................................................. $446,000
========
</TABLE>
10. RELATED PARTY TRANSACTIONS
Prior to the Acquisition, ZCC provided certain services to ZDI, including
legal, tax, human resources, payroll, facilities management and management
information services. The remaining unpaid balance (approximately $8,100) for
such services was paid in the normal course of business during 1995. Beginning
in 1995, ZDI sublet office space and provided administrative services to ZCC.
Such office space and services were provided to ZCC at ZDI's cost. The
majority partners of ZCC have a continuing investment in Holdings of
approximately 6%.
On the closing date of the Acquisition, ZDI paid approximately $280,000 in
cash to the Sellers and issued notes due January 13, 1995 and January 16, 1995
totaling $1,033,931, for the balance. These notes were subsequently fully paid
in January, 1995.
See Note 11 for a description of subordinated debentures.
In connection with the Acquisition, ZDI paid transaction costs of $14,000 to
an affiliate of Holdings.
The Company paid $44,555 and $3,791 in interest to Holdings for the year
ended December 31, 1995 and for the period from January 1, 1996 to February
28, 1996, respectively.
11. SUBORDINATED DEBENTURES--RELATED PARTY
On December 21, 1994, ZDI issued a $525,000 subordinated note payable to
Holdings to finance a portion of the Acquisition. The note bears interest at 8
1/2% per annum with interest payable semiannually on February 28 and August 31
of each year. The principal is repayable in three installments of $175,000
each on December 21, 2005, December 21, 2006 and December 21, 2007. This note
is fully subordinated in right of payment to the bank borrowings (see Note 9).
F-40
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
12. EMPLOYEE BENEFIT PLANS
Retirement plans
ZDI and its subsidiaries maintain various defined contribution retirement
plans. Substantially all of ZDI's employees are eligible to participate in one
of the plans under which annual contributions may be made by ZDI for the
benefit of all eligible employees. Employees may also make contributions to
the plan in which they participate which, subject to certain limitations, may
be matched by ZDI up to certain specified percentages. Employees are generally
eligible to participate in a plan upon joining ZDI and receive matching
contributions immediately upon commencement of employment. In addition, the
employees become eligible to receive a discretionary Company contribution
after one year of employment. ZDI made contributions of $8,432 and $1,407 for
the year ended December 31, 1995 and for the period ended February 28, 1996,
respectively.
13. SALE OF BUSINESSES
During 1995, ZDI disposed of two subsidiaries and received cash
consideration of $23,508. No gain or loss was realized on the dispositions.
14. OPERATING LEASE COMMITMENTS
ZDI is obligated under various operating leases which expire at various
dates through 2006. Future minimum rental commitments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1996 (ten-month period).............................................. $15,771
1997................................................................. 19,606
1998................................................................. 18,219
1999................................................................. 12,532
2000................................................................. 9,611
Thereafter........................................................... 14,583
-------
Total.............................................................. $90,322
=======
</TABLE>
Netted in the above totals is approximately $2,300 for which ZDI has
noncancelable subleases in place. Total sublease income approximates ZDI's
required payments under the related leases. Rent expense amounted to
approximately $22,900 and $4,020 for the year ended December 31, 1995 and for
the period from January 1, 1996 to February 28, 1996, respectively.
15. CONTINGENCIES
ZDI is subject to various claims and legal proceedings arising in the normal
course of business. Management believes that the ultimate liability, if any,
in the aggregate will not be material to the consolidated balance sheet,
future operations or cash flows.
16. SUBSEQUENT EVENTS
Acquisition of the Company
In February 1996, SOFTBANK Corp. entered into an agreement to acquire the
stock of ZDI for an aggregate purchase price of approximately $1,800,000, plus
transaction costs. In a separate agreement, MAC Inc. Ltd., an affiliated
company of SOFTBANK Corp., acquired directly and through affiliates, certain
of the assets and assumed certain of the liabilities of ZDI for an aggregate
purchase price of approximately $302,000.
F-41
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 28, 1998 25,800,000 Shares
Ziff-Davis Inc.
COMMON STOCK
----------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. OF THE 25,800,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY,
5,160,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS AND 20,640,000 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL
BE BETWEEN $14.00 AND $17.00 PER SHARE. SEE "UNDERWRITERS" FOR
A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE.
----------
CONCURRENTLY WITH THE OFFERING BEING MADE HEREBY, THE COMPANY IS OFFERING, BY
MEANS OF A SEPARATE PROSPECTUS, $250 MILLION AGGREGATE PRINCIPAL AMOUNT OF
ITS % SENIOR SUBORDINATED NOTES DUE 2008 (THE "NOTES OFFERING" AND,
TOGETHER WITH THE OFFERING, THE "OFFERINGS"). THE CONSUMMATION OF
EACH OF THE OFFERINGS IS CONDITIONED UPON, AND WILL OCCUR
SIMULTANEOUSLY WITH, THE CONSUMMATION OF THE OTHER. SEE "USE OF
PROCEEDS."
----------
UPON COMPLETION OF THE OFFERINGS, AFFILIATES OF THE COMPANY WILL RETAIN
APPROXIMATELY 74.2% OF THE OUTSTANDING VOTING POWER OF THE COMPANY. SEE
"PRINCIPAL STOCKHOLDERS."
----------
ALL THE NET PROCEEDS WILL BE PAID TO AFFILIATES OF THE COMPANY. SEE "USE OF
PROCEEDS."
----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "ZD," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at
$ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
3,870,000 additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
----------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about , 1998 at
the office of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.
----------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
International
, 1998
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 28, 1998
100,000 Shares
Ziff-Davis Inc.
COMMON STOCK
----------
SOFTBANK KINGSTON INC., AN AFFILIATE OF THE COMPANY, INTENDS TO SELL A
PORTION OF THE SHARES OF COMMON STOCK OF THE COMPANY ISSUED TO KINGSTON
TECHNOLOGY COMPANY IN EXCHANGE FOR CERTAIN ASSETS
TRANSFERRED TO THE COMPANY. SEE "THE REORGANIZATION,"
"PRINCIPAL STOCKHOLDERS" AND "UNDERWRITERS."
----------
THE COMPANY IS OFFERING, BY MEANS OF A SEPARATE PROSPECTUS, $250 MILLION
AGGREGATE PRINCIPAL AMOUNT OF ITS % SENIOR SUBORDINATED NOTES DUE 2008
(THE "NOTES OFFERING") AND 25,800,000 SHARES OF ITS COMMON STOCK (THE
"COMMON STOCK OFFERING") AND, TOGETHER WITH THE COMMON STOCK
OFFERING, THE "OFFERINGS"). THE CONSUMMATION OF EACH OF THOSE
OFFERINGS IS CONDITIONED UPON, AND WILL OCCUR SIMULTANEOUSLY
WITH, THE CONSUMMATION OF THE OTHER. SEE "USE OF
PROCEEDS."
----------
UPON COMPLETION OF THE OFFERINGS, AFFILIATES OF THE COMPANY WILL RETAIN
APPROXIMATELY 74.2% OF THE OUTSTANDING VOTING POWER OF THE COMPANY. SEE
"PRINCIPAL STOCKHOLDERS."
----------
ALL OF THE NET PROCEEDS HEREUNDER WILL BE PAID TO SOFTBANK KINGSTON INC. AND
NONE WILL BE PAID TO THE COMPANY, AND ALL THE NET PROCEEDS FROM THE OFFERINGS
WILL BE PAID TO AFFILIATES OF THE COMPANY. SEE "USE OF PROCEEDS."
----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "ZD," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $ A SHARE
----------
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses, other than
underwriting discounts and commissions, to be incurred in connection with the
distribution of the securities registered under this Registration Statement.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Securities and Exchange Commission registration fee............ $ 149,297
NASD fees and expenses......................................... 30,500
Legal fees and expenses........................................ 650,000
NYSE listing fees and expenses................................. 135,000
Accounting fees and expenses................................... 1,000,000
Printing and engraving fees.................................... 450,000
Registrar and transfer agent's fees............................ 12,500
Miscellaneous.................................................. 72,703
----------
Total........................................................ $2,500,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceeding in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
statute provides that it is not exclusive of other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. Section 6.4 of the
Registrant's By-laws provides for indemnification by the Registrant of its
directors, officers and employees to the fullest extent permitted by the
Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for payments of unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. The Company's Certificate of Incorporation provides
for such limitation of liability.
Reference is also made to Section 7(c) of the Underwriting Agreement filed
as Exhibit 1.1 to the Registration Statement for information concerning the
Underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Form of Certificate of Incorporation of the Company.
3.2 Form of By-laws of the Company.*
4.1 Specimen of certificate representing the Company's Common Stock, par
value $.01 per share.*
4.2 Indenture, dated as of May 1, 1998, between Ziff-Davis Inc. and The Bank
of New York, as Trustee (incorporated herein by reference to the exhibit
in the Company's Registration Statement on Form S-1, File No. 333-
49441).
5.1 Opinion of Sullivan & Cromwell, counsel to the Company.*
10.1 1998 Incentive Compensation Plan.*
10.2 1998 Employee Stock Purchase Plan.*
10.3 Undertaking, dated as of April 1, 1998, between SOFTBANK Corp. and ZD
Inc.*
10.4 License and Services Agreement, dated as of July 28, 1997, between Ziff-
Davis Inc., ZDTV LLC, ZD Television Productions, Inc., MAC Holdings
(America) Inc. and MAC Inc.*
10.5 Master License Agreement, dated as of April 1, 1998, between Ziff-Davis
Inc. and SOFTBANK Corp.*
10.6 License Agreement, dated as of July 1, 1997, between MAC Inc. and Ziff-
Davis Inc. and SOFTBANK Corp.*
10.7 Agreement to Produce, dated April 1, 1998, between ZD COMDEX and Forums
Inc. and SOFTBANK Forums KK.*
10.8 Trademark License Agreement, dated as of April 1, 1998, between ZD
COMDEX and Forums Inc. and SOFTBANK Forums KK.*
10.9 Technical Assistance Agreement, dated as of April 1, 1998, between ZD
COMDEX and Forums Inc. and SOFTBANK Forums KK.*
10.10 Accounting and Administrative Services Agreement, dated as of April 1,
1998, between ZD COMDEX and Forums Inc. and SOFTBANK Forums KK.*
10.11 Registration Rights Agreement, dated as of April 1, 1998, between ZD
Inc. and SOFTBANK Holdings Inc.*
10.12 Credit Agreement, dated as of March 27, 1996 between SOFTBANK Holdings
Inc., the Guarantors listed therein, The Bank of New York and Morgan
Stanley Senior Funding, Inc., as amended March 9, 1998.*
10.13 Secured Guaranteed Credit Agreement, dated as of May 4, 1998, among
Ziff-Davis Inc., the Banks listed therein, Morgan Stanley Senior
Funding, Inc., as Syndication Agent, the Chase Manhattan Bank and DLJ
Capital Funding, Inc. as Co-Documentation Agents, The Bank of New York,
as Administrative Agent, and the Guarantors.
10.14 Lease of Ziff-Davis Inc. headquarters at 28 East 28th Street, New York,
New York.*
10.15 Lease Agreement, dated as of May 4, 1998, between Ziff-Davis Inc., ZD
Inc., ZD COMDEX and Forums Inc. and Kingston Technology Company.*
10.16 1998 Non-Employee Directors Stock Option Plan Agreement.*
10.17 Assignment, dated as of May 4, 1998, between Kingston Technology Company
and Ziff-Davis Inc.*
10.18 Employment Agreement, dated as of April 1, 1998, between ZD Inc. and
Eric Hippeau.*
10.19 Employment Agreement, dated as of April 1, 1998, between ZD COMDEX and
Forums Inc. and Jason E. Chudnofsky.*
12. Computation of Ratio of Earnings to Fixed Charges.*
21.1 List of subsidiaries of the Company.*
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5 above).*
27 Financial Data Schedule.*
</TABLE>
- --------
* Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing of the Offering, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14,
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment to the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, New York on the 28th day of April, 1998.
ZD Inc.
/s/ Eric Hippeau
By
-----------------------------------
ERIC HIPPEAU
CHAIRMAN, CHIEF
EXECUTIVE OFFICER
Each of the undersigned hereby constitutes and appoints Timothy C. O'Brien
(Chief Financial Officer of the Company) and J. Malcolm Morris (Senior Vice
President and General Counsel), and each of them severally, his/her true and
lawful attorney-in-fact or attorneys-in-fact with power of substitution and
resubstitution to sign in his/her name, place and stead in any and all such
capacities the Registration Statement and any and all amendments thereto
(including post-effective amendments and amendments filed pursuant to Rule
462(b) under the Securities Act) and any documents in connection therewith,
and to file the same with the Securities and Exchange Commission, each of said
attorneys-in-fact to have power to act with or without the other, and to have
full power and authority to do and perform, in the name and on behalf of each
such officer and director of the Registrant who shall have executed such a
power of attorney, every act whatsoever which such attorneys-in-fact, or any
of them, may deem necessary or desirable to be done in connection therewith as
fully and to all intents and purposes as such officer or director of the
Registrant might or could do in person.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on April 28, 1998.
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
/s/ Eric Hippeau Chairman, Chief Executive Officer, Director
- ------------------------------------- (Principal Executive Officer)
ERIC HIPPEAU
/s/ Timothy C. O'Brien Chief Financial Officer, Director
- ------------------------------------- (Principal Financial Officer)
TIMOTHY C. O'BRIEN
/s/ Mark D. Moyer Controller
- ------------------------------------- (Principal Accounting Officer)
MARK D. MOYER
/s/ Masayoshi Son Director
- -------------------------------------
MASAYOSHI SON
/s/ Yoshitaka Kitao Director
- -------------------------------------
YOSHITAKA KITAO
/s/ Ronald D. Fisher Director
- -------------------------------------
RONALD D. FISHER
</TABLE>
II-4
<PAGE>
NAME TITLE
/s/ Jason E. Chudnofsky Director
- -------------------------------------
JASON E. CHUDNOFSKY
/s/ Claude P. Sheer Director
- -------------------------------------
CLAUDE P. SHEER
/s/ Jonathan D. Lazarus Director
- -------------------------------------
JONATHAN D. LAZARUS
/s/ Jerry C.-Y. Yang Director
- -------------------------------------
JERRY C.-Y. YANG
II-5
<PAGE>
EXHIBIT 3.1
-----------
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
ZD INC.
(Pursuant to Section 241 of the General Corporation law
of the State of Delaware)
ZD Inc., a Delaware corporation (the "Corporation"), hereby certifies
as follows:
FIRST. The Corporation has not received any payment for any of its
stock and this amendment to its certificate of incorporation has been duly
adopted in accordance with Section 241 of the General Corporation law of the
State of Delaware.
SECOND. The Board of Directors of the Corporation duly adopted a
resolution setting forth and declaring advisable the amendment of its
certificate of incorporation to read as follows:
<PAGE>
ARTICLE FIRST
NAME
The name of the Corporation is Ziff-Davis Inc.
ARTICLE SECOND
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
ARTICLE THIRD
PURPOSES
The purposes of the Corporation are as follows:
(a) to publish information on computing and Internet-related
technology through the media of print, CD ROM/DVD, Internet and television;
(b) to produce trade shows, conferences, exhibitions and similar
events primarily related to computing and Internet-related technology; and
(c) to engage in any other lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE FOURTH
CAPITAL STOCK
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 130 million shares, of which 120
million shares of the par value of $.01 per share shall be designated as Common
Stock, and 10 million shares of the par value of $.01 per share shall be
designated as Preferred Stock.
-2-
<PAGE>
Shares of Preferred Stock may be issued in one or more series from
time to time by the board of directors, and the board of directors is expressly
authorized to fix by resolution or resolutions the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
thereof, of the shares of each series of Preferred Stock, including without
limitation the following:
(a) the distinctive serial designation of such series which shall
distinguish it from other series;
(b) the number of shares included in such series;
(c) the dividend rate (or method of determining such rate) payable to
the holders of the shares of such series, any conditions upon which such
dividends shall be paid and the date or dates upon which such dividends
shall be payable;
(d) whether dividends on the shares of such series shall be
cumulative and, in the case of shares of any series having cumulative
dividend rights, the date or dates or method of determining the date or
dates from which dividends on the shares of such series shall be
cumulative;
(e) the amount or amounts which shall be payable out of the assets of
the Corporation to the holders of the shares of such series upon voluntary
or involuntary liquidation, dissolution or winding up the Corporation, and
the relative rights of priority, if any, of payment of the shares of such
series;
(f) the price or prices at which, the period or periods within which
and the terms and conditions upon which the shares of such series may be
redeemed, in whole or in part, at the option of the Corporation or at the
option of the holder or holders thereof or upon the happening of a
specified event or events;
(g) the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price
or prices at which, the period or periods within which and the terms and
conditions upon which the shares of such series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;
(h) whether or not the shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or holders
thereof or at the
-3-
<PAGE>
option of the Corporation or upon the happening of a specified event or
events, into shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Corporation, and the
price or prices or rate or rates of exchange or conversion and any
adjustments applicable thereto; and
(i) whether or not the holders of the shares of such series shall
have voting rights, in addition to the voting rights provided by law, and
if so the terms of such voting rights.
Subject to the rights of the holders of any series of Preferred Stock, the
number of authorized shares of any class or series of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of Delaware or any corresponding
provision hereafter enacted.
ARTICLE FIFTH
BY-LAWS
The board of directors of the Corporation is expressly authorized to
adopt, amend or repeal by-laws of the Corporation.
The by-laws of the Corporation may also be altered or repealed and new
by-laws may be adopted (i) at any annual or special meeting of stockholders, by
the affirmative vote of the holders of not less than a majority of the voting
power of all outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, considered for purposes hereof as a
single class, provided, however, that any proposed alteration or repeal of, or
the adoption of any by-law inconsistent with, Sections 1.2, 1.11 and 1.12 of
Article I of the by-laws, Sections 2.1 and 2.2 of Article II of the by-laws, or
this sentence, by the stockholders shall require the affirmative vote of the
holders of not less than 80% of the voting power of all outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, considered for purposes hereof as a single class, or (ii) by the
affirmative vote of a majority of the board of directors.
-4-
<PAGE>
ARTICLE SIXTH
BOARD OF DIRECTORS
The number of directors of the Corporation shall be fixed from time to
time pursuant to the by-laws of the Corporation. Commencing with the first
annual meeting of stockholders, the directors of the Corporation shall be
divided into three classes, as nearly equal in number as reasonably possible, as
determined by the board of directors, with the initial term of office of the
first class of such directors ("Class I") to expire at the first annual meeting
of stockholders, the initial term of office of the second class of such
directors ("Class II") to expire at the second annual meeting of stockholders
and the initial term of office of the third class of such directors ("Class
III") to expire at the third annual meeting of stockholders thereafter, with
each class of directors to hold office until their successors have been duly
elected and qualified. At each annual meeting of stockholders, directors
elected to succeed the directors whose terms expire at such annual meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders in the third year following the year of their election and until
their successors have been duly elected and qualified. Elections of directors
need not be by written ballot except and to the extent provided in the by-laws
of the Corporation. In the event of any increase or decrease in the authorized
number of directors, (a) each director then serving as such shall nonetheless
continue as a director of the class of which he is a member until the expiration
of his current term, or his earlier death, retirement, resignation, or removal,
and (b) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the board of directors among the
three classes of directors so as to maintain such classes as nearly equal in
number as reasonably possible. No director may be removed except for cause,
provided a director who is also an officer of the Corporation shall resign or be
removed upon termination of his or her employment as such officer. This Article
SIXTH may not be amended, modified or repealed except by the affirmative vote of
the holders of not less than 80% of the voting power of all outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors, considered for purposes hereof as a single class.
-5-
<PAGE>
ARTICLE SEVENTH
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of
the Corporation must be taken at a duly called annual or special meeting of such
holders and may not be taken by any consent in writing by such holders. Except
as otherwise provided for herein or required by law, special meetings of
stockholders of the Corporation for any purpose or purposes may be called only
by the Chairman or the board of directors pursuant to a resolution stating the
purpose or purposes thereof, and any power of stockholders to call a special
meeting is specifically denied.
ARTICLE EIGHTH
DIRECTOR LIABILITY
A director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that such exemption from liability or limitation
thereof is not permitted under the Delaware General Corporation Law as currently
in effect or as the same may hereafter be amended. No amendment, modification
or repeal of this Article EIGHTH shall adversely affect any right or protection
of a director that exists at the time of such amendment, modification or repeal.
IN WITNESS WHEREOF, ZD Inc. has caused this certificate to be signed
by Eric Hippeau, its Chairman, on the 1st day of May 1998.
ZD INC.
By_______________________________
Eric Hippeau, Chairman
-6-
<PAGE>
EXHIBIT 10.13
WSP&R
DRAFT
4/27/98
$1,350,000,000
SECURED GUARANTEED CREDIT AGREEMENT
Dated as of May [4], 1998
Among
ZIFF-DAVIS INC.,
THE BANKS LISTED ON THE SIGNATURE PAGES HEREOF,
MORGAN STANLEY SENIOR FUNDING, INC.,
as Syndication Agent,
THE CHASE MANHATTAN BANK and
DLJ CAPITAL FUNDING, INC.,
as Co-Documentation Agents,
THE BANK OF NEW YORK,
as Administrative Agent
and
THE GUARANTORS
BNY Capital Markets, Inc.
and
Morgan Stanley Senior Funding, Inc.,
as Lead Arrangers
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
ARTICLE 1
CREDIT FACILITY
Section 1.01 Commitment to Lend.......................................................................1
(a) Term Loans........................................................................1
(b) RC Loans..........................................................................1
(c) Swing Loans.......................................................................1
(d) Type of Loans.....................................................................2
Section 1.02 Manner of Borrowing......................................................................2
(a) RC Loans..........................................................................2
(b) Swing Loans.......................................................................3
Section 1.03 Interest.................................................................................4
(a) Rates.............................................................................4
(b) Payment...........................................................................4
(c) Conversion and Continuation.......................................................5
(d) Maximum Interest Rate.............................................................6
Section 1.04 Repayment................................................................................6
(a) Terms Loans........................................................................6
(b) RC Loans..........................................................................6
(c) Swing Loans.......................................................................6
Section 1.05 Prepayments..............................................................................7
(a) Optional Prepayments..............................................................7
(b) Default Mandatory Prepayments and Fundings........................................7
(c) Application to Types of Loans.....................................................9
(d) Application to Installments.......................................................9
(e) Reborrowing.......................................................................9
Section 1.06 Limitation on Types of Loans............................................................9
Section 1.07 Commitment to Issue Letters of Credit....................................................9
(a) Amounts of Letters of Credit.....................................................10
(b) Terms of Letters of Credit.......................................................10
(c) Uniform Customs..................................................................10
(d) Limitation on Obligation to Issue Letters of Credit..............................10
Section 1.08 Manner of Issuance or Amendment of Letters of Credit....................................11
Section 1.09 Obligation of Borrower to Reimburse Issuing Bank for Drawings...........................11
Section 1.10 Obligations of Participating Banks......................................................12
(a) Acquisition by Participating Banks of LC Participations in Letters of Credit.....12
(b) Funding by Participating Banks of LC Participations..............................12
Section 1.11 Absolute, Unconditional and Irrevocable Obligation......................................13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 1.12 Limited Liability of the Issuing and Participating Banks................................14
Section 1.13 Provisions Not Exclusive; Conflict......................................................15
Section 1.14 Reduction or Increase of Commitments....................................................15
(a) Optional Reduction of RC Commitments.............................................15
(b) Mandatory Reduction of RC Commitments............................................15
(c) Optional Increase of RC Commitments..............................................16
Section 1.15 Fees....................................................................................16
(a) RC Commitment Fee................................................................16
(b) Letter of Credit Fees............................................................17
Section 1.16 Computation of Interest and Fees........................................................18
Section 1.17 Evidence of Indebtedness................................................................18
Section 1.18 Payments by the Borrower................................................................18
(a) Time, Place and Manner............................................................18
(b) No Reductions....................................................................19
(c) Extension of Payment Dates.......................................................19
Section 1.19 Distribution of Payments by the Administrative Agent....................................20
Section 1.20 Taxes...................................................................................20
(a) Taxes Payable by the Borrower.....................................................20
(b) Taxes Payable by the Administrative Agent, the Issuing Bank or any Bank..........21
(c) Exemption from U.S. Withholding Taxes............................................21
(d) Limitations......................................................................22
Section 1.21 Pro Rata Treatment......................................................................22
ARTICLE 2
CONDITIONS TO CREDIT EXTENSIONS
Section 2.01 Conditions to Initial Credit Extension..................................................22
Section 2.02 Conditions to Each Loan.................................................................25
ARTICLE 3
CERTAIN REPRESENTATIONS AND WARRANTIES
Section 3.01 Organization; Power; Qualification......................................................26
Section 3.02 Subsidiaries............................................................................26
Section 3.03 Authorization; Enforceability; Required Consents; Absence of Conflicts..................26
Section 3.04 Affiliate Indebtedness and Investments..................................................27
Section 3.05 Taxes...................................................................................27
Section 3.06 Litigation..............................................................................27
Section 3.07 Burdensome Provisions...................................................................28
Section 3.08 No Adverse Change or Event..............................................................28
Section 3.09 Guarantors..............................................................................28
Section 3.10 Investment Company Act..................................................................28
Section 3.11 Registration Statement..................................................................28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 4
CERTAIN COVENANTS
Section 4.01 Preservation of Existence and Properties, Scope of Business, Compliance with Law,
Payment of Taxes and Claims, Preservation of Enforceability.............................29
Section 4.02 Insurance...............................................................................29
Section 4.03 Use of Proceeds.........................................................................29
Section 4.04 Subsidiaries and Wholly Owned Subsidiaries..............................................30
(a) Subsidiaries.....................................................................30
(b) Wholly Owned Subsidiaries........................................................30
Section 4.05 Indebtedness............................................................................30
Section 4.06 Guaranties..............................................................................31
Section 4.07 Liens...................................................................................31
Section 4.08 Restricted Payments.....................................................................31
Section 4.09 Merger or Consolidation.................................................................32
Section 4.10 Disposition of Assets...................................................................32
Section 4.11 Investments.............................................................................33
Section 4.12 Benefit Plans...........................................................................34
Section 4.13 Transactions with Affiliates............................................................34
Section 4.14 Subordinated Indebtedness...............................................................34
Section 4.15 Issuance of Capital Securities..........................................................35
Section 4.16 Limitation on Restrictive Covenants.....................................................36
Section 4.17 Leverage Ratio..........................................................................36
Section 4.18 Senior Leverage Ratio...................................................................36
Section 4.19 Ratio of Consolidated EBITDA to Consolidated Interest Expense...........................36
Section 4.20 Fixed Charge Coverage...................................................................36
Section 4.21 [License and Services Agreement]........................................................37
Section 4.22 Interest Rate Protection Agreements.....................................................37
ARTICLE 5
INFORMATION
Section 5.01 Information to Be Furnished.............................................................37
(a) Quarterly Financial Statements...................................................37
(b) Year-End Financial Statements; Accountants' Certificate..........................37
(c) Officer's Certificate as to Financial Statements and Defaults....................38
(d) Requested Information............................................................38
(e) Notice of Defaults, Material Adverse Changes and Other Matters...................38
Section 5.02 Accuracy of Financial Statements and Information........................................39
(a) Financial Statements..............................................................39
(b) Other Information................................................................39
Section 5.03 Additional Covenants Relating to Disclosure.............................................39
(a) Accounting Methods and Financial Records.........................................40
(b) Visits, Inspections and Discussions..............................................40
Section 5.04 Authorization of Third Parties to Deliver Information and Discuss Affairs...............40
</TABLE>
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<S> <C> <C>
ARTICLE 6
DEFAULT
Section 6.01 Events of Default.......................................................................40
Section 6.02 Remedies upon Event of Default..........................................................43
ARTICLE 7
ADDITIONAL CREDIT FACILITY PROVISIONS
Section 7.01 Mandatory Suspension and Conversion of Eurodollar Rate Loans............................44
Section 7.02 Regulatory Changes......................................................................45
Section 7.03 Capital Requirements....................................................................46
Section 7.04 Funding Losses..........................................................................46
Section 7.05 Certain Determinations..................................................................47
Section 7.06 Change of Lending Office................................................................47
ARTICLE 8
THE ADMINISTRATIVE AGENT
Section 8.01 Appointment and Powers..................................................................48
Section 8.02 Limitation on Administrative Agent's Liability..........................................48
Section 8.03 Defaults................................................................................48
Section 8.04 Rights as a Bank........................................................................49
Section 8.05 Indemnification.........................................................................49
Section 8.06 Non-Reliance on Administrative Agent and Other Banks....................................49
Section 8.07 Execution and Amendment of Loan Documents on Behalf of the Banks........................50
Section 8.08 Resignation of the Administrative Agent.................................................50
ARTICLE 9
GUARANTEES
Section 9.01 Guaranty of Payment.....................................................................51
Section 9.02 Limitation on Guaranty..................................................................51
Section 9.03 Continuance and Acceleration of Guaranteed Obligations upon Certain Events..............51
Section 9.04 Recovered Payments......................................................................52
Section 9.05 Evidence of Guaranteed Obligations......................................................52
Section 9.06 Binding Nature of Certain Adjudications.................................................52
Section 9.07 Nature of Guarantor's Obligations.......................................................52
Section 9.08 No Release of Guarantor.................................................................53
Section 9.09 Certain Waivers.........................................................................53
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 10
MISCELLANEOUS
Section 10.01 Notices and Deliveries..................................................................53
(a) Manner of Delivery................................................................53
(b) Addresses........................................................................53
(c) Effectiveness....................................................................55
(d) Reasonable Notice................................................................56
(e) Collateral.......................................................................56
Section 10.02 Expenses; Indemnification...............................................................56
Section 10.03 Amounts Payable Due upon Request for Payment............................................57
Section 10.04 Remedies of the Essence.................................................................57
Section 10.05 Rights Cumulative.......................................................................57
Section 10.06 Confidentiality.........................................................................58
Section 10.07 Amendments; Waivers.....................................................................58
Section 10.08 Set-Off; Suspension of Payment and Performance..........................................59
Section 10.09 Sharing of Recoveries...................................................................59
Section 10.10 Assignments and Participations..........................................................60
(a) Assignments......................................................................60
(b) Participation....................................................................61
Section 10.11 Governing Law...........................................................................62
Section 10.12 Judicial Proceedings; Waiver of Jury Trial..............................................62
Section 10.13 LIMITATION OF LIABILITY.................................................................62
Section 10.14 Severability of Provisions..............................................................63
Section 10.15 Counterparts............................................................................63
Section 10.16 Survival of Obligations.................................................................63
Section 10.17 Entire Agreement........................................................................63
Section 10.18 Successors and Assigns..................................................................63
Section 10.19 Cash Collateral.........................................................................63
Section 10.20 Registered Notes........................................................................64
Section 10.21 Foreign Currency Conversion.............................................................64
ARTICLE 11
INTERPRETATION
Section 11.01 Defined Terms...........................................................................65
Section 11.02 Other Interpretive Provisions...........................................................90
Section 11.03 Accounting Matters......................................................................91
Section 11.04 Representations and Warranties..........................................................92
Section 11.05 Captions................................................................................92
Section 11.06 Interpretation of Related Documents.....................................................92
</TABLE>
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ANNEX A BANKS, LENDING OFFICES AND NOTICE ADDRESSES
Schedule 1.02(a) NOTICE OF BORROWING
Schedule 1.03(c) NOTICE OF CONVERSION OR CONTINUATION
Schedule 1.05 NOTICE OF PREPAYMENT
Schedule 1.20(c) NON-US BANK CERTIFICATE
Schedule 2.01(a)(i) CERTIFICATE AS TO RESOLUTIONS, ETC.
Annex A RESOLUTIONS OF BOARD OF DIRECTORS
Annex A-1 RESOLUTIONS OF SHAREHOLDERS
Annex A-2 MINUTES AND BY-LAWS/ARTICLES OF INCORPORATION
Schedule 3.02 SCHEDULE OF SUBSIDIARIES
Schedule 3.03 SCHEDULE OF REQUIRED CONSENTS, GOVERNMENTAL APPROVALS
AND GOVERNMENTAL REGISTRATIONS
Schedule 3.06 SCHEDULE OF MATERIAL LITIGATION
Schedule 4.05 SCHEDULE OF INDEBTEDNESS
Schedule 4.06 SCHEDULE OF EXISTING GUARANTIES
Schedule 4.07 SCHEDULE OF EXISTING LIENS
Schedule 4.11 SCHEDULE OF EXISTING INVESTMENTS
Schedule 4.12 SCHEDULE OF EXISTING BENEFIT PLANS
Schedule 5.01(b) CERTIFICATE AS TO FINANCIAL STATEMENTS AND DEFAULTS
Schedule 5.02(a) SCHEDULE OF HISTORICAL FINANCIAL STATEMENTS
Schedule 9.01 SCHEDULE OF GUARANTORS
Schedule 10.10(a) NOTICE OF ASSIGNMENT
EXHIBIT A-I TERM A NOTE
EXHIBIT A-II TERM B NOTE
EXHIBIT A-III RC NOTE
EXHIBIT A-IV SWING LOAN NOTE
EXHIBIT B FORM OF SUBORDINATION AGREEMENT
EXHIBIT C COMMITMENT INCREASE SUPPLEMENT
EXHIBIT D TERMS OF COMMITMENT INCREASE ASSIGNMENTS
EXHIBIT E FORM OF PLEDGE AGREEMENT
EXHIBIT F GUARANTOR SUPPLEMENT
vi
<PAGE>
SECURED GUARANTEED CREDIT AGREEMENT
Dated as of May [4], 1998
ZIFF-DAVIS INC., a Delaware corporation, the GUARANTORS listed on the
signature pages hereof, the BANKS, MORGAN STANLEY SENIOR FUNDING, INC., as
Syndication Agent, THE CHASE MANHATTAN BANK and DLJ CAPITAL FUNDING, INC., as
Co-Documentation Agents, and THE BANK OF NEW YORK, as Administrative Agent,
agree as follows (with certain terms used herein being defined in Article 11):
ARTICLE 1
---------
CREDIT FACILITY
---------------
Section 1.01 Commitment to Lend. (a) Term A Loans. Upon the terms and
------------------ ------------
subject to the conditions of this Agreement, each Bank agrees to make, on the
Agreement Date, a Term A Loan to the Borrower in an aggregate principal amount
not exceeding such Bank's Term A Commitment. The aggregate amount of the Term A
Commitments on the Agreement Date is $450,000,000.
(b) Term B Loans. Upon the terms and subject to the conditions of
------------
this Agreement, each Bank agrees to make, on the Agreement Date, a Term B Loan
to the Borrower in an aggregate principal amount not exceeding such Bank's Term
B Commitment. The aggregate amount of the Term B Commitments on the Agreement
Date is $400,000,000.
(c) RC Loans. Upon the terms and subject to the conditions of this
--------
Agreement, each Bank agrees to make, from time to time during the period from
the Agreement Date through the RC Termination Date, one or more RC Loans to the
Borrower in an aggregate unpaid principal amount not exceeding at any time such
Bank's RC Commitment at such time; provided that no such RC Loan shall be made
--------
if, after giving effect to the making of such RC Loan and the simultaneous
application of the proceeds thereof, (i) the aggregate amount of the Exposure of
such Bank would exceed the RC Commitment of such Bank or (ii) the aggregate
amount of the Exposures of all of the Banks would exceed the aggregate amount of
the RC Commitments. The aggregate amount of the RC Commitments on the Agreement
Date is $500,000,000.
(d) Swing Loans. Upon the terms and subject to the conditions of this
Agreement, the Swing Line Bank shall, for its own account, make one or more
Swing Loans to the Borrower; provided that no Swing Loan shall be made if, after
--------
giving effect to the making of such Swing Loan and the simultaneous application
of the proceeds thereof (i) the aggregate principal amount of outstanding Swing
Loans would exceed the Swing Line Sublimit or (ii) the aggregate amount of the
Exposures of all of the Banks would exceed the aggregate amount of the RC
Commitments. Swing Loans may only be made and continued as Base Rate Loans or
Agreed Rate Loans.
<PAGE>
(e) Type of Loans.
-------------
Subject to Section 1.06 and the other terms and conditions of this
Agreement, the Loans (other than Swing Loans) may, at the option of the
Borrower, be made as, and from time to time continued as or converted into, Base
Rate or Eurodollar Rate Loans of any permitted Type, or any combination thereof.
Section 1.02 Manner of Borrowing.
-------------------
(a) RC Loans. With respect to RC Loans:
--------
(i) The Borrower shall give the Administrative Agent notice (which
shall be irrevocable) no later than, in the case of a Base Rate Loan, 11:00 a.m.
on the Business Day before the requested date for the making of such RC Loan
and, in the case of a Eurodollar Rate RC Loan, 11:00 a.m. on the third
Eurodollar Business Day before the requested date for the making of such RC
Loan. Each such notice shall be substantially in the form of Schedule 1.02(a)
----------------
and shall specify (A) the requested date for the making of the requested RC
Loan, which shall be, in the case of a Base Rate RC Loan, a Business Day and, in
the case of a Eurodollar Rate RC Loan, a Eurodollar Business Day, (B) the Type
or Types of RC Loans requested and (C) the amount of each such Type of RC Loan,
the aggregate of which amounts for each Type of RC Loans requested shall,
subject to Section 1.10(b)(ii), be not less than (1) in the case of Eurodollar
Rate RC Loans, the lesser of (aa) $10,000,000 or any integral multiple of
$1,000,000 in excess thereof and (bb) the aggregate amount of unused RC
Commitments and (2) in the case of Base Rate RC Loans, the lesser of (aa)
$1,000,000 or any integral multiple of $500,000 in excess thereof, and (bb) the
aggregate amount of the unused RC Commitments. Upon receipt of any such notice,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and the amount and Type of RC Loan to be made by such Bank.
(ii) On each requested date for the making of RC Loans, each Bank
shall, if it has received the notice contemplated by Section 1.02(a)(i) on or
prior to (A) in the case of Eurodollar Rate Loans, its close of business on the
third Eurodollar Business Day before such requested date and (B) in the case of
Base Rate Loans, its close of business on the Business Day before such requested
date, make available to the Administrative Agent, not later than 11:00 a.m., in
Dollars in funds immediately available to the Administrative Agent at the
Administrative Agent's Office, the RC Loans to be made by such Bank on such
requested date. Any Bank's failure to make any RC Loan to be made by it on the
requested date therefor shall not relieve any other Bank of its obligation to
make any RC Loan to be made by such other Bank on such date, but such other Bank
shall not be liable for such failure.
(iii) Unless the Administrative Agent shall have received notice from
a Bank prior to 10:00 a.m., on the requested date for the making of any RC Loans
that such Bank will not make available to the Administrative Agent the RC Loans
requested to be made by such Bank on such date, the Administrative Agent may
assume that such Bank has made such RC Loans available to the Administrative
Agent on such date in accordance with Section 1.02(a)(ii) and the Administrative
Agent in its sole discretion may, in reliance upon such assumption, make
available to the Borrower (or, in the case of RC Loans requested pursuant to
Section 1.04(d) or Section 1.05(b)(i), to the Swing Line Bank) on such date a
corresponding amount on behalf of such Bank. If and to the extent such Bank
shall not have so made available to the Administrative Agent the RC Loans
requested to be made by such Bank on such date and the Administrative Agent
shall have so made available to the Borrower a corresponding amount on behalf of
such Bank, such Bank shall, on demand, pay to the Administrative Agent such
corresponding amount
2
<PAGE>
together with interest thereon, for each day from the date such amount shall
have been so made available by the Administrative Agent to the Borrower until
the date such amount shall have been repaid to the Administrative Agent, at the
Federal Funds Rate until (and including) the third Business Day after demand is
made and thereafter at the Base Rate. If such Bank does not pay such
corresponding amount promptly upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the Borrower and the Borrower
shall immediately repay such corresponding amount to the Administrative Agent
together with accrued interest thereon at the applicable rate or rates
provided in Section 1.03(a); provided that no such repayment by the Borrower
--------
shall affect the rights of the Borrower with respect to any Bank's wrongful
refusal to lend.
(iv) All RC Loans made available to the Administrative Agent in
accordance with Section 1.02(a)(ii) shall be disbursed by the Administrative
Agent not later than 2:00 p.m. on the requested date therefor in Dollars in
funds immediately available to the Borrower by credit to an account of the
Borrower at the Administrative Agent's Office or in such other manner as may
have been specified in the applicable notice and as shall be acceptable to the
Administrative Agent.
(b) Swing Loans.
-----------
With respect to Swing Loans:
(i) The Borrower shall give the Administrative Agent and, if the Swing
Line Bank is a Bank that is not the Administrative Agent, the Swing Line Bank,
notice (which shall be irrevocable) no later than 1:00 p.m. on the requested
date for the making of a Swing Loan. Each such notice shall specify (A) the
amount of the requested Swing Loan, which amount shall be not less than the
lesser of (1) $100,000 or any integral multiple of $100,000 in excess thereof
and (2) the Swing Line Availability on the requested date for the making of such
Swing Loan, (B) whether such Swing Loan shall be an Agreed Rate Loan or a Base
Rate Loan and (C) if such Swing Loan shall be an Agreed Rate Loan, the number of
days (which shall not be more than five Business Days) that the Agreed Rate for
such Swing Loan is to apply (the "Agreed Rate Interest Period"). Such notice
---------------------------
may be by telephone, confirmed by telecopy on the date of the making of the
requested Swing Loan. If the Borrower and the Swing Line Bank do not agree upon
a requested Agreed Rate, the requested Swing Loan shall be made as a Base Rate
Loan, unless the Borrower withdraws the request for such Swing Loan. Upon the
expiration of an Agreed Rate Interest Period, the Swing Loan in question shall
be continued, subject to Section 1.04(d), as a Base Rate Loan.
(ii) Swing Loans shall be disbursed by the Swing Line Bank not later
than 4:30 p.m. on the requested date therefor in Dollars in funds immediately
available to the Borrower by credit to an account of the Borrower at the Swing
Line Bank's Office, or in such other manner as may have been specified in the
applicable notice and as shall be acceptable to the Swing Line Bank.
Section 1.03 Interest.
--------
(a) Rates. (i) Term A Loans, Term B Loans and RC Loans.
----- ---------------------------------------
Subject to Section 1.03(a)(iii), each Term A Loans, Term B Loan and
each RC Loan shall bear interest on the outstanding principal amount thereof at
a rate per annum equal to (A) so long as it is a Base Rate Loan, the Base Rate
as in effect from time to time plus the
3
<PAGE>
applicable Base Rate Margin and (B) so long as it is a Eurodollar Rate Loan, the
applicable Adjusted Eurodollar Rate plus the applicable Eurodollar Rate Margin.
(ii) Swing Loans.
-----------
Subject to Section 1.03(a)(iii), each Swing Loan shall bear interest
on the outstanding principal amount thereof at a rate per annum equal to the
Base Rate as in effect from time to time plus the applicable Base Rate Margin
or, if the Borrower and the Swing Line Bank shall have agreed upon an Agreed
Rate with respect to such Swing Loan, such Agreed Rate; provided that upon the
--------
earliest of (A) the fifth Business Day after the date such Swing Loan was made,
(B) the expiration of the Agreed Rate Interest Period with respect to such Swing
Loan and (C) the date of occurrence of a Bankruptcy Default, any such Swing Loan
shall cease to bear interest at the Agreed Rate and shall bear interest at the
Base Rate as in effect from time to time plus the applicable Base Rate Margin.
(iii) Post-Default Rate.
-----------------
During an Event of Default (which is such by virtue of clause (a) of
Section 6.01, and whether before or after judgment), each Loan (whether or not
due) and, to the maximum extent permitted by Applicable Law, all other amounts
in respect of interest and fees due and payable under the Borrower Loan
Documents, shall bear interest at a rate per annum equal to the applicable Post-
Default Rate.
(b) Payment.
-------
Interest shall be payable, (i) in the case of Base Rate Loans that are
Term A Loans, Term B Loans or RC Loans, on each Payment Date, (ii) in the case
of Eurodollar Rate Loans, on the last day of each applicable Interest Period
(and, if an Interest Period is longer than three months, at intervals of three
months after the first day of such Interest Period) and (iii) in the case of any
Loan, when such Loan shall be due (whether at maturity, by reason of notice of
prepayment or acceleration or otherwise) or converted, but only to the extent
then accrued and unpaid on the amount then so due or converted. Interest at the
Post-Default Rate shall be payable on demand.
(c) Conversion and Continuation.
---------------------------
(i) All or any part of the principal amount of Term A Loans, Term B
Loans and RC Loans of any Type may, on any Business Day, be converted into any
other Type or Types of Term A Loans, Term B Loans and RC Loans, except that (A)
Eurodollar Rate Loans may be converted only on the last day of an applicable
Interest Period and (B) Base Rate Loans may be converted into Eurodollar Rate
Loans only on a Eurodollar Business Day.
(ii) Each Term A Loans, Term B Loan and RC Loan that is a Base Rate
Loan shall continue as a Base Rate Loan unless and until such Loan is converted
into a Term A Loans, Term B Loan or an RC Loan, as the case may be, of another
Type. Each Term A Loans, Term B Loan and RC Loan that is a Eurodollar Rate Loan
of any Type shall continue as a Term A Loans, Term B Loan or an RC Loan, as the
case may be, of such Type until the end of the then current Interest Period
therefor, at which time it shall be automatically converted into a Base Rate
Loan unless the Borrower shall have given the Administrative Agent notice in
accordance with Section 1.03(c) requesting either that such Loan continue as a
Loan of such Type or that such Loan be converted into a Term A Loans, Term B
Loan or an RC Loan, as the case may be, of another Type at the end of such
Interest Period.
4
<PAGE>
(iii) Notwithstanding anything to the contrary contained in Section
1.03(c)(i) or (ii), during a Default, the Administrative Agent may notify the
Borrower that Term A Loans, Term B Loans and RC Loans may only be converted into
or continued as Term A Loans, Term B Loans and RC Loans, as the case may be, of
certain specified Types and, thereafter, until no Default shall continue to
exist, Term A Loans, Term B Loans and RC Loans may not be converted into or
continued as Term A Loans, Term B Loans or RC Loans of any Type other than one
or more of such specified Types.
(iv) The Borrower shall give the Administrative Agent notice (which
shall be irrevocable) of each conversion of a Term A Loans, Term B Loan or an RC
Loan or continuation of a Term A Loans, Term B Loan or an RC Loan that is a
Eurodollar Rate Loan no later than, in the case of a conversion into a Base Rate
Loan, 11:00 a.m. on the Business Day before, and, in the case of a conversion
into or continuation of a Term A Loans, Term B Loan or an RC Loan that is a
Eurodollar Rate Loan, 11:00 a.m. on the third Eurodollar Business Day before,
the requested date of such conversion or continuation. Each notice of
conversion or continuation shall be in the form of Schedule 1.03(c) and shall
----------------
specify (A) whether the Loans to be converted or continued are Term A Loans,
Term B Loans or RC Loans, (B) the requested date of such conversion or
continuation, (C) the amount and Type and, in the case of Eurodollar Rate Loans,
the last day of the applicable Interest Period of each Loan to be converted or
continued and (D) the amount and Type or Types of Loans into which such Loans
are to be converted or as to which such Loans are to be continued. Upon receipt
of any such notice, the Administrative Agent shall promptly notify each Bank of
(x) the contents thereof, (y) the amount and Type and, in the case of Eurodollar
Rate Loans, the last day of the applicable Interest Period of, each Loan to be
converted or continued by such Bank and (z) the amount and Type or Types of
Loans into which such Loans are to be converted or as which such Loans are to be
continued.
(d) Maximum Interest Rate.
---------------------
Nothing contained in the Loan Documents shall require the Borrower at
any time to pay interest at a rate exceeding the Maximum Permissible Rate. If
interest payable by the Borrower on any date would exceed the maximum amount
permitted by the Maximum Permissible Rate, such interest payment shall
automatically be reduced to such maximum permitted amount, and interest for any
subsequent period, to the extent less than the maximum amount permitted for such
period by the Maximum Permissible Rate, shall be increased by the unpaid amount
of such reduction. Any interest actually received for any period in excess of
such maximum amount permitted for such period shall be deemed to have been
applied as a prepayment of the Loans, the Drawings or the other amounts in
respect of which such interest was paid, as the case may be.
Section 1.04 Repayment.
---------
(a) Term A Loans.
------------
The Term A Loans shall mature and become due and payable and shall be
repaid by the Borrower, in eighteen (18) consecutive quarterly installments,
payable on successive Payment Dates commencing on September 30, 2000 and with
the final
5
<PAGE>
installment payable on the Term A Termination Date. Each such installment shall
be in the amount equal to $22,500,000; provided that the final such installment
--------
shall be in an amount equal to the amount of the Term A Loans then outstanding.
(b) Term B Loans.
------------
The Term B Loans shall mature and become due and payable and shall be
repaid by the Borrower, in twenty-two (22) consecutive quarterly installments,
payable on successive Payment Dates commencing on September 30, 2000 and with
the final installment payable on the Term B Termination Date. Each such
installment shall be in the amount equal to $1,000,000; provided that the final
--------
such installment shall be in an amount equal to the amount of the Term B Loans
then outstanding.
(c) RC Loans.
--------
The RC Loans shall mature and become due and payable, and shall be
repaid by the Borrower, in full on the RC Termination Date.
(d) Swing Loans.
-----------
Each Swing Loan shall become due and payable, and shall be repaid by
the Borrower, in full on the earlier of (i) the date that is five Business Days
after the date that such Swing Loan was made and (ii) the RC Termination Date.
Except in the case of a Swing Loan maturing on the RC Termination Date, if, on
or prior to the maturity of a Swing Loan, the Borrower shall not have requested
either an RC Loan pursuant to Section 1.02(a) hereof or a Swing Loan pursuant to
Section 1.02(b) hereof, the maturity of such Swing Loan pursuant to this Section
1.04(d) shall (i) be deemed to constitute a notice under Section 1.02(a)
requesting RC Loans in an amount equal to such Swing Loan be made by the Banks
(including the Swing Line Bank) and that such Loans be Base Rate Loans, (ii)
have the same force and effect as a notice from the Borrower under such Section
and (iii) be subject to all the terms and conditions of Section 1.02(a), except
that (A) the requirement (1) to deliver a notice in the form of Schedule 1.02(a)
----------------
and (2) that the aggregate amount of Loans be not less than $1,000,000 shall not
apply and (B) the conditions to borrowing specified in Section 2.02 (other than
the absence of any continuing Bankruptcy Default) shall not apply.
Section 1.05 Prepayments.
-----------
(a) Optional Prepayments.
--------------------
The Borrower may, at any time and from time to time, prepay the Loans
in whole or in part, without premium or penalty, except that any partial
prepayment shall be in an aggregate principal amount of at least (i) in the case
of Eurodollar Rate Loans, $10,000,000 or any integral multiple of $1,000,000 in
excess thereof, (ii) in the case of Base Rate Loans that are not Swing Loans,
$1,000,000 or any integral multiple of $500,000 in excess thereof and (iii) in
the case of Swing Loans $100,000 or any integral multiple of $100,000 in excess
thereof, and any prepayment of a Eurodollar Rate Loan or a Swing Loan that is an
Agreed Rate Loan shall be subject to Section 7.04. The Borrower shall give the
Administrative Agent and, in the case of prepayments of Swing Loans, if the
Swing Line Bank is not the Administrative Agent, the Swing Line Bank, notice of
each prepayment of a Loan no later than 10:00 a.m. on, in the case of a
prepayment of Base Rate Loans and Swing Loans, the Business Day, and, in the
case of a prepayment of Eurodollar Rate Loans, the third Eurodollar Business
Day, before the date of such prepayment. Each notice of prepayment of a Loan
shall be substantially in the form of Schedule 1.05 and shall specify (i)
-------------
whether the Loans to be prepaid are Term A Loans, Term B Loans, RC Loans or
Swing Loans, (ii) the date such prepayment is to be made, (iii) in the case of
Term A Loans, Term B Loans and RC Loans, the amount and Type and, in the case of
Eurodollar Rate Loans, the last day of the applicable Interest Period of each
Loan to be prepaid and (iv) in the case of Swing Loans, the amount and, in the
case of Agreed Rate Loans, the last day of its applicable Agreed Rate Interest
Period of such Swing Loan to be prepaid. Upon receipt of any such notice, other
than a notice of prepayment of Swing Loans, the Administrative Agent shall
promptly notify each Bank of the contents thereof and the amount and Type and,
in the case of a Eurodollar Rate Loan, the last day of the applicable Interest
Period of each Loan of such Bank to be prepaid. Amounts to be prepaid shall
irrevocably be due and payable on the date specified in the applicable notice of
prepayment, together with interest thereon as provided in Section 1.03(b).
6
<PAGE>
(b) Default Mandatory Prepayments and Fundings.
------------------------------------------
(i) Default Mandatory Prepayments of Swing Loans.
--------------------------------------------
If any Default exists, other than a Bankruptcy Default, the Swing Line
Bank may request that outstanding Swing Loans be refunded by delivering to the
Administrative Agent and the Borrower on any Business Day a request to that
effect, specifying the principal amount of outstanding Swing Loans. Such a
request shall (A) be deemed to constitute a notice under Section 1.02(a)
requesting that RC Loans in an amount equal to the outstanding Swing Loans be
made by the Banks (including the Swing Line Bank, in its capacity as a Bank) and
that such RC Loans be Base Rate Loans, (B) have the same force and effect as a
notice from the Borrower under such Section and (C) be subject to all the terms
and conditions of Section 1.02(a), except that (1) the requirement (aa) to
deliver a notice in the form of Schedule 1.02(a) and (bb) that the aggregate
----------------
amount of RC Loans be not less than the amount specified in Section 1.02(a) for
the applicable Type of RC Loan shall not apply and (2) the conditions to
borrowing specified in Section 2.02 (other than the absence of any continuing
Bankruptcy Default) shall not apply.
(ii) Default Mandatory Fundings of Participations in Swing Loans.
-----------------------------------------------------------
(A) During a Bankruptcy Default, upon request (which shall relate to all
Swing Loans then outstanding) by the Swing Line Bank on any Business Day, each
Bank (including the Swing Line Bank in its capacity as a Bank) shall purchase
from the Swing Line Bank, without recourse or warranty (except that such
outstanding Swing Loans in fact were made in accordance with Section 1.01(d)(i),
and are not subject to any Liens arising out of any act of the Swing Line Bank),
a participation in the Swing Loans then outstanding (each such participation a
"Swing Loan Participation") by paying to the Swing Line Bank, in Dollars
- -------------------------
immediately available to the Swing Line Bank at the Swing Line Bank's Office, an
amount equal to such Bank's Pro Rata Share of the principal amount of such Swing
Loans, with such payment being due on the day such request is made, if such
request is made prior to 2:00 p.m. on such day, or if such request is made after
2:00 p.m. on the next Business Day (the "Participation Payment Date"). Each
--------------------------
Swing Loan Participation shall constitute an undivided interest and
participation in the principal amount of Swing Loans then outstanding and in
interest that accrues thereon after the Participation Payment Date. The Swing
Line Bank shall, upon the request of a Bank, furnish to such Bank a
participation certificate evidencing any Swing Loan Participation purchased by
such Bank pursuant to this Section 1.05. If any Bank does not pay when due any
amount which it is required to pay to the Swing Line Bank pursuant to this
Section 1.05(b)(ii)(A) in respect of its Swing Loan Participation in any Swing
Loan, the Swing Line Bank shall be entitled to recover such amount from such
Bank, together with interest thereon for each day from the Participation Payment
Date until the date such amount shall be paid to the Swing Line Bank, at the
Federal Funds Rate until (and including) the third Business Day after the
Participation Payment Date and thereafter at the Base Rate. Until payment in
full is made by such Bank of all amounts to be paid to the Swing Line Bank by
such Bank in respect of such Swing Loan Participation, the Swing Line Bank shall
hold such Bank's Pro Rata Share of any amount paid by the Borrower after the
Participation Payment Date to the Swing Line Bank in respect of the Swing Loan
to which such Swing Loan Participation relates as security for such Bank's
obligation to make such payment.
(B) Subject to the final sentence of Section 1.05 (b)(ii)(A), the
Swing Line Bank shall promptly distribute to each Bank its Pro Rata Share of
each payment received (whether directly from the Borrower or otherwise,
including proceeds of any collateral) by the Swing Line Bank after the
Participation Payment Date on account of the principal amount of any Swing
7
<PAGE>
Loan and interest accrued thereon after the Participation Payment Date; provided
--------
that in the event that any such payment received by the Swing Line Bank shall be
required to be returned by the Swing Line Bank, for any reason, such Bank shall
return to the Swing Line Bank the portion thereof previously distributed by the
Swing Line Bank to it, but without interest thereon (unless the Swing Line Bank
is required to pay interest on the amount so returned, in which case such Bank
shall be required to pay interest at a like rate). Payments received after the
Participation Payment Date by the Swing Line Bank on account of Swing Loans
shall be applied first to the payment of interest accrued thereon through the
Participation Payment Date.
(iii) Obligations of Banks Absolute and Unconditional.
-----------------------------------------------
The obligation of each Bank to make an RC Loan to repay Swing Loans as
contemplated by Section 1.05(b)(i) and to purchase Swing Loan Participations in,
and to make payments to the Swing Line Bank with respect thereto, as
contemplated in Section 1.05(b)(ii), shall be absolute, unconditional and
irrevocable.
(c) Application to Types of Loans.
-----------------------------
Amounts prepaid pursuant to Section 1.03(d) shall be applied to
prepay, first, Swing Loans, second, RC Loans, and third, Term A Loans, and Term
----- ------ -----
B Loans, pro rata in accordance with the amounts outstanding at the time of such
prepayment, and such amounts shall be applied, first, to the payment of such
-----
Loans that are Base Rate Loans and, second, to such loans that are Eurodollar
------
Rate Loans or Agreed Rate Loans in the order that the Interest Periods or Agreed
Rate Interest Periods, as applicable, for such Loans ends.
(d) Application to Installments.
---------------------------
Prepayments of the Term A Loans, Term B Loans made (or deemed to have
been made pursuant to Section 1.03(d)) shall be applied to installments of the
Term A Loans, Term B Loans, as the case may be, in the direct order of their
maturities.
(e) Reborrowing.
-----------
Any amounts of Term A Loans, Term B Loans repaid or prepaid may not be
reborrowed.
Section 1.06 Limitation on Types of Loans.
-----------------------------
Notwithstanding anything to the contrary contained in this Agreement, the
Borrower shall borrow, prepay, convert and continue Loans in a manner such that
(a) the aggregate principal amount of Eurodollar Rate Loans of the same Type and
having the same Interest Period shall at all times be not less than $10,000,000,
(b) there shall not be, at any one time, more than fifteen Interest Periods in
effect with respect to Eurodollar Rate Loans of all Types and (c) no payment of
a Eurodollar Rate Loan will have to be made prior to the last day of an
applicable Interest Period in order to repay the Loans on (subject to Section
1.18(c)), in the case of RC Loans, the RC Termination Date, in the case of Term
A Loans, the Term A Termination Date, and in the case of Term B Loans, the Term
B Termination Date.
Section 1.07 Commitment to Issue Letters of Credit.
-------------------------------------
(a) Amounts of Letters of Credit.
----------------------------
Upon the terms and subject to the conditions of this Agreement, the
Issuing Bank agrees to issue, from time to time during the period from the
Agreement Date through the RC Termination Date, one or more (and to amend
outstanding) Letters of Credit for the account of the Borrower; provided that no
--------
Letter of Credit shall be issued or amended if, after giving effect
8
<PAGE>
to the issuance or amendment of such Letter of Credit, (i) the aggregate of all
Letter of Credit Amounts would exceed the LC Sublimit, (ii) the aggregate amount
of the Exposures of all of the Banks would exceed the aggregate amount of the RC
Commitments or (iii) in the case of a Participating Bank, the Exposure of such
Participating Bank would exceed the RC Commitment of such Participating Bank;
and provided, further, that not more than ten Letters of Credit (or such greater
-------- -------
number that may be acceptable to the Issuing Bank) shall be outstanding at any
time.
(b) Terms of Letters of Credit.
--------------------------
Each Letter of Credit: (i) may be either (A) a documentary Letter of
Credit in support of trade obligations of the Borrower or a Consolidated
Subsidiary or (B) a standby Letter of Credit in support of other Liabilities of
the Borrower or a Consolidated Subsidiary, that in the case of either (A) or
(B), arise in the ordinary course of business of the Borrower or such
Consolidated Subsidiary, as the case may be, or in connection with any
acquisition or disposition of assets not prohibited by the terms of this
Agreement; (ii) shall be (A) denominated only in Dollars and (B) in a stated
amount of not less than $25,000; (iii) shall have an expiration date occurring
not later than the earlier of (A) five Business Days before the RC Termination
Date and (B)(1) in the case of a documentary Letter of Credit, six months after
the issuance thereof and (2) in the case of a standby Letter of Credit one year
after the issuance thereof; provided that standby Letters of Credit may provide
--------
that, absent notice to the contrary from the Issuing Bank to the Borrower and
the beneficiary thereof, the expiration date shall be automatically extended
for successive one-year periods, but not beyond that date that is five Business
Days before the RC Termination Date; and (iv) may contain such other terms and
conditions as may be approved by the Issuing Bank.
(c) Uniform Customs.
---------------
Each Letter of Credit shall be subject to the Uniform Customs and, to
the extent not inconsistent therewith, the laws of the State of New York.
(d) Limitation on Obligation to Issue Letters of Credit.
---------------------------------------------------
The Issuing Bank shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Bank or any Participating Bank to exceed any limits imposed by, any
Applicable Law; provided that the Issuing Bank and each Participating Bank
--------
hereby agrees to use reasonable efforts to permit such Letter of Credit to be
issued within the restrictions of such Applicable Law; and provided, further,
-------- -------
that the Issuing Bank shall not be deemed to have knowledge that the issuance of
any Letter of Credit would exceed any limits imposed by Applicable Law on any
Participating Bank unless the Issuing Bank shall have received not less than two
and not more than ten Business Days' notice of such fact from such Participating
Bank.
Section 1.08 Manner of Issuance or Amendment of Letters of Credit.
----------------------------------------------------
(a) The Borrower shall request the issuance or amendment of a Letter of
Credit by delivering to the Issuing Bank (with a copy to the Administrative
Agent), no later than 10:00 a.m. (New York time) at least five Business Days
before the requested date (which shall be a Business Day) of such issuance or
amendment, (A) in the case of any such issuance or amendment, a duly completed
and executed Application (which shall be irrevocable) for the issuance or
amendment of such Letter of Credit; provided that if such Application is
--------
transmitted to the Issuing Bank by telecopy, the original of such Application
shall be provided to the Issuing Bank as soon as practicable thereafter but in
any event prior to 10:00 a.m. (New York time) on the requested date of issuance
or amendment of such Letter of Credit and (B) in the case of any such issuance,
if the
9
<PAGE>
desired form of Letter of Credit is different from the Issuing Bank's standard
form, a copy of such desired form of Letter of Credit.
(b) Upon receipt by the Issuing Bank of any duly completed and
executed Application, and subject to the terms and conditions hereof, the
Issuing Bank will process such Application in accordance with its customary
procedures and shall issue the Letter of Credit requested thereby on the date
requested in such Application by issuing the original of such Letter of Credit
to the beneficiary thereof or as otherwise may be agreed by the Issuing Bank and
the Borrower.
(c) The Issuing Bank may provide the Borrower with a copy of any
proposed Letter of Credit, as well as any other instruments and documents the
Issuing Bank deems desirable from time to time, which the Borrower shall
promptly examine and, in the event the Borrower has any claim of noncompliance
with its instructions or of any discrepancy or other irregularity, the Borrower
shall immediately and, in any event no later than, in the case of a proposed
Letter of Credit, three Business Days before the requested date of the issuance
of such Letter of Credit, and, in the case of any other instruments and
documents, the date specified by the Issuing Bank, notify the Issuing Bank
thereof in writing, and the Borrower will be conclusively deemed to have waived
any such claim against the Issuing Bank and its correspondents unless such
immediate notice is given.
(d) The Issuing Bank shall, on the date of each issuance of a Letter
of Credit, give the Administrative Agent, each Participating Bank and the
Borrower notice of such issuance, accompanied by a copy to the Administrative
Agent and the Borrower of such Letter of Credit.
Section 1.09 Obligation of Borrower to Reimburse Issuing Bank for
----------------------------------------------------
Drawings.
(a) The Issuing Bank shall promptly notify (i) the Borrower, the
Administrative Agent and each Participating Bank having an LC Participation in
any Letter of Credit of its receipt of a drawing request with respect to such
Letter of Credit, stating the date and amount of the Drawing requested and, in
the case of a Participating Bank, the amount of such Participating Bank's
Participating Bank Percentage of such Drawing and (ii) the Borrower of the date
and amount of each Drawing made pursuant to such request. The Issuing Bank's
failure to give, or delay in giving, any such notice shall not release or
diminish the obligations hereunder of the Borrower and each such Participating
Bank in respect of such Drawing.
(b) (i) Drawings shall mature and become due and payable, and shall
be repaid to the Issuing Bank by the Borrower in full, together with all amounts
payable pursuant to Section 1.09(b)(ii) that are due to the Issuing Bank in
connection with such Drawing, no later than 3:00 p.m. on the date the Issuing
Bank notifies the Borrower of such Drawing, if such notice is given at or before
11:00 a.m. on such date and, if not, no later than 1:00 p.m. on the next
Business Day.
(ii) Each Drawing shall bear interest on the outstanding principal
amount thereof at a rate per annum equal to the Base Rate as in effect from time
to time plus the applicable Base Rate Margin from the date such Drawing is
disbursed by the Issuing Bank to the
10
<PAGE>
date such Drawing is reimbursed by the Borrower. Interest on each Drawing shall
be payable when such Drawing shall be due (whether at maturity, by reason of
acceleration or otherwise).
Section 1.10 Obligations of Participating Banks.
----------------------------------
(a) Acquisition by Participating Banks of LC Participations in
----------------------------------------------------------
Letters of Credit.
- -----------------
Upon the issuance of a Letter of Credit, the Issuing Bank shall be
deemed to have granted to each Participating Bank (including the Issuing Bank in
its capacity as a Bank), and each Participating Bank (including the Issuing Bank
in its capacity as a Bank) shall be deemed to have acquired from the Issuing
Bank, without further action by any party hereto, for its own account and risk,
an undivided interest (each such interest an "LC Participation") in the Issuing
----------------
Bank's rights under Section 1.09(b) in respect of Drawings under such Letter of
Credit to the extent of such Participating Bank's Participating Bank Percentage
thereof. A Bank that is a Participating Bank with respect to a Letter of Credit
shall remain a Participating Bank with respect to that Letter of Credit
notwithstanding its subsequent designation, if any, as a Nonparticipating Bank
with respect to any other Letter of Credit.
(b) Funding by Participating Banks of LC Participations.
---------------------------------------------------
(i) If the Borrower fails to pay to the Issuing Bank in full the
principal amount of, together with interest accrued on, a Drawing in accordance
with the terms of this Agreement, each Participating Bank that has an LC
Participation in such Letter of Credit shall pay to the Issuing Bank, upon
demand (a "Funding Demand"), its Participating Bank Percentage of such unpaid
--------------
amount, in Dollars in funds immediately available to the Issuing Bank at the
Administrative Agent's Office, on, if such demand is made not later 3:00 p.m. on
a Business Day, such Business Day, and, if not, the next Business Day, together
with interest on such amount from the date of the relevant Drawing until such
amount is paid in full at, for the first three days, the Federal Funds Rate and,
thereafter, the Base Rate.
(ii) Until payment in full of all amounts required to be paid by it
pursuant to Section 1.10(b)(i) in respect of its LC Participation is made by the
Participating Bank obligated to make such payments, the Issuing Bank shall hold
such Participating Bank's Participating Bank Percentage of all amounts paid by
the Borrower in respect of the Drawing relating to such unpaid amount, or in
respect of interest thereon, as security for such Participating Bank's
obligation to make such payment.
(c) Subject to Section 1.10(b)(ii), if, at any time after a Funding
Demand in respect of a Drawing, the Issuing Bank receives any payment on account
of such Drawing (whether directly from the Borrower or otherwise, including
proceeds of any collateral applied thereto), or any payment on account of
interest thereon, the Issuing Bank shall, subject to Section 1.10(b)(ii),
promptly distribute to each Participating Bank with respect to such Drawing its
Participating Bank Percentage thereof; provided that in the event that any such
--------
payment received by the Issuing Bank shall be required to be returned by the
Issuing Bank, for any reason other than pursuant to an Adjudicated Letter of
Credit Claim, such Participating Bank shall return to the Issuing Bank the
portion thereof previously distributed by the Issuing Bank to it, but without
interest thereon (unless the Issuing Bank is required to pay interest on the
amount so returned, in which case the Participating Bank shall be required to
pay interest at the same rate).
(d) (i) If any Bank Nonparticipation occurs with respect to a Bank,
(A) the Administrative Agent, the Borrower and such Bank agree, if requested by
the Borrower, to
11
<PAGE>
attempt to locate an Eligible Assignee that will accept the assignment of the
Loans, LC Participations, Commitments and other rights and obligations hereunder
of such Bank and (B) if such an Eligible Assignee is located, such Bank agrees
to assign its interest in its Loans, LC Participations, Commitments and other
rights and obligations hereunder to such Eligible Assignee in accordance with
Section 10.10(a), for a purchase price equal to the unpaid principal amount of
such Bank's Loans and funded LC Participations, together with interest thereon
and fees accrued to the date of payment of such purchase price and all other
amounts at such time payable to such Bank under the Loan Documents. If Loans to
be so assigned include Eurodollar Rate Loans, the assignment thereof shall occur
on the last day of the then-current Interest Periods. If no such assignment is
arranged, the Borrower may, if no Default exists, upon ten days' prior notice to
such Bank, terminate such Bank's Commitments and thereupon promptly prepay such
Bank's Loans and all other amounts payable to such Bank hereunder (including,
without limitation, with respect to its LC Participations and Commitments) and
cash collateralize its LC Participations; provided that prepayments of
--------
Eurodollar Rate Loans shall(1) be made on the last day of the applicable
Interest Periods or (2) if made on a day other than the last day of the
applicable Interest Periods, be accompanied by the amount, if any, due with
respect thereto under Section 7.04.
(ii) If, as a result of the existence of a Bank Nonparticipation with
respect to any Bank, availability of the RC Commitments is reduced, such Bank
shall be deemed to have breached its RC Commitment to the extent of such
reduction and, subject to Section 10.13, shall be liable to the Borrower for any
damages resulting from such reduction.
Section 1.11 Absolute, Unconditional and Irrevocable Obligation.
--------------------------------------------------
The obligation of the Borrower to reimburse the Issuing Bank, the
Administrative Agent and each Participating Bank for payments made with respect
to any Letter of Credit shall be absolute, unconditional and irrevocable,
without necessity of presentment, demand, protest, notice of dishonor or notice
of intent, and the obligation of each Participating Bank to acquire LC
Participations in, and to make payments to the Issuing Bank with respect to
Letters of Credit pursuant to Funding Demands, shall be absolute, unconditional
and irrevocable. Such obligations of the Borrower and the Participating Banks
shall be performed strictly in accordance with the terms hereof (and without any
reduction whatsoever, including any reduction or deduction for any set-off,
recoupment or counterclaim (whether sounding in tort, contract or otherwise))
under all circumstances including the following circumstances:
(a) any lack of validity or enforceability of any Letter of Credit,
this Agreement or any other Loan Documents or any other agreement;
(b) the existence of any claim, set-off, defense or other right which
the Borrower or any of its Affiliates or any Bank may at any time have
against a beneficiary or any transferee of any Letter of Credit (or any
Persons or entities for whom any such transferee may be acting), the
Administrative Agent, the Issuing Bank, the Swing Line Bank, any Bank or
any other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or therein or any unrelated
transaction (including any underlying transaction between the Borrower or
any of its Affiliates and the beneficiary for which any Letter of Credit
was procured);
12
<PAGE>
(c) any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(d) payment by the Issuing Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does
not comply with the terms of such Letter of Credit;
(e) the fact that a Default or an Event of Default shall have occurred
and be continuing; and
(f) any other circumstance or happening whatsoever.
Section 1.12 Limited Liability of the Issuing and Participating Banks.
---------------------------------------------------------
(a) (i) The Issuing Bank, the Participating Banks and their
respective officers, directors, employees and agents shall not be liable or
responsible for, and the Borrower hereby waives, releases and agrees not to sue
for any Letter of Credit Loan Document Claim, including any claim involving (A)
the use which may be made of any Letter of Credit or any acts or omissions of
any beneficiary or transferee in connection therewith; (B) the validity,
sufficiency or genuineness of documents presented under any Letter of Credit, or
any endorsements thereon, even if such documents should in fact prove to be in
any or all respects invalid, insufficient, fraudulent or forged; (C) any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of Credit
(except for errors or omissions caused by the Issuing Bank's gross negligence or
willful misconduct); (D) subject, in the case of the Issuing Bank, to Section
1.12(b), payment by the Issuing Bank against presentation of documents to the
Issuing Bank which do not comply with the terms of the applicable Letter of
Credit, including failure of any documents to bear any reference or adequate
reference to such Letter of Credit; or (E) any other similar circumstances
whatsoever in insuring or failing to insure payment under any Letter of Credit.
The Issuing Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary unless any beneficiary (or a transferee to whom such
Letter of Credit has been transferred in accordance with its terms) and the
Borrower shall have notified the Issuing Bank that such documents do not comply
with the terms and conditions of such Letter of Credit. The Issuing Bank shall
not incur any liability by acting in reliance upon any notice, consent,
certificate, statement or other writing (which may be a bank wire, telex,
facsimile transmission or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
(ii) The Borrower assumes all risks of the acts or omissions of any
beneficiary and any transferee of any Letter of Credit with respect to its use
of such Letter of Credit.
(b) (i) Notwithstanding Section 1.12(a) (i) but subject to Section
10.13, the Issuing Bank shall be liable to the Borrower for Adjudicated Letter
of Credit Claims; provided that notwithstanding any such claim, the Borrower
--------
shall make payments under Section 1.09 in the manner but with the effect
contemplated by Section 1.18(b).
13
<PAGE>
(ii) Each Bank shall, ratably in accordance with its RC Commitment,
indemnify the Issuing Bank (to the extent not reimbursed by the Borrower)
against any cost, expense (including counsel fees and disbursements), claim,
demand, action, loss or liability (except for Adjudicated Letter of Credit
Claims) that the Issuing Bank may suffer or incur in connection with this
Agreement or any action taken or omitted by the Issuing Bank hereunder.
Section 1.13 Provisions Not Exclusive; Conflict.
----------------------------------
The rights and remedies of the Issuing Bank, the Administrative Agent and
the Banks under this Agreement in respect of any Letters of Credit are
supplemental to, and not in derogation of, any rights and remedies of the
Issuing Bank, the Administrative Agent and the Banks under the Applications
related to such Letters of Credit and under other Applicable Law. In the event
of any conflict between the terms of this Agreement and the terms of any
Application, the terms set forth in this Agreement shall control.
Section 1.14 Reduction or Increase of Commitments.
-------------------------------------
(a) Optional Reduction of RC Commitments.
------------------------------------
The Borrower may permanently reduce the RC Commitments by giving the
Administrative Agent notice (which shall be irrevocable) thereof no later than
10:00 a.m. on the Business Day before the requested date of such reduction,
except that (i) no partial reduction of the RC Commitments shall be in an
aggregate amount less than $10,000,000 or any integral multiple of $5,000,000 in
excess thereof and (ii) no reduction may reduce the RC Commitments to an amount
less than the aggregate amount of Exposures at such time. Upon receipt of any
such notice, the Administrative Agent shall promptly notify each Bank of the
contents thereof and the amount to which such Bank's RC Commitment is to be
reduced and shall notify the Issuing Bank of the amount to which the aggregate
RC Commitments are to be reduced.
(b) Mandatory Reduction of RC Commitments.
-------------------------------------
The aggregate RC Commitments shall be automatically and permanently
reduced in nineteen (19) consecutive quarterly reductions, on successive Payment
Dates commencing on September 30, 2000 and with the final reduction to zero on
the RC Termination Date. Each such reduction shall be in the amount equal to 5%
of the aggregate RC Commitments in effect on June 30, 2000, and the final such
reduction shall be in an amount equal to the aggregate RC Commitments then in
effect; provided that, at the request of the Borrower as part of the notice to
--------
the Administrative Agent of an optional reduction of the RC Commitments pursuant
to Section 1.14(a) on or after June 30, 2000, any of the scheduled reductions
required to be made by Section 1.14(b) shall be reduced by the amount specified
in such notice to the Administrative Agent, provided that such reduction shall
--------
not exceed the amount of such optional reduction. The Borrower shall prepay the
principal amount of the RC Loans that is in excess of the aggregate amount of
the RC Commitments as so reduced on the effective date of such reduction.
(c) Optional Increase of RC Commitments.
-----------------------------------
At any time on or prior to June 30, 2000, the aggregate amount of the
RC Commitments may be increased once to an amount not in excess of
$1,000,000,000, either by new Banks establishing such additional RC Commitments
or by one or more then-existing Banks increasing their RC Commitments (each such
increase by either means, a "Commitment Increase," and each such new Bank or
-------------------
Bank increasing its RC Commitment, an "Additional Commitment Bank"); provided
-------------------------- --------
that no Default or Event of Default shall exist immediately prior to or after
the effective date of such Commitment Increase; and provided, further, that no
-------- -------
such Commitment Increase shall become effective unless and until the
14
<PAGE>
Borrower and the Additional Commitment Bank shall have executed and delivered an
agreement substantially in the form of Exhibit C such Administrative Agent shall
---------
have consented to such Additional Commitment Bank (which consent shall not be
unreasonably withheld or delayed) (a "Commitment Increase Supplement"). On the
------------------------------
effective date of such Commitment Increase, each Additional Commitment Bank
shall pay to each other Bank the purchase price (as determined in accordance
with Exhibit D hereto) for an assignment of a portion of such other Banks RC
---------
Loans outstanding at such time such that, after giving effect to such
assignments, the respective aggregate amount of RC Loans of each Bank (other
than the Additional Commitment Bank) shall be in the same proportion to its RC
Commitments as immediately preceding such assignment. Upon payment of such
purchase price, each other Bank shall be deemed to have sold and made such an
assignment to such Additional Commitment Bank, and such Additional Commitment
Bank shall be deemed to have purchased and assumed such an assignment from each
other Bank, on the terms set forth in Exhibit D hereto. Upon the effectiveness
---------
of any Commitment Increase, the Borrower shall issue an RC Note to each
Additional Commitment Bank (other than an existing Bank).
Section 1.15 Fees.
----
(a) RC Commitment Fee.
-----------------
The Borrower shall pay to the Administrative Agent for the account of
each Bank a commitment fee at a rate per annum equal to (a) for the period from
the Agreement Date to the date three Business Days after the delivery of the
financial statements of the Borrower pursuant to Section 5.01(a) for the
quarterly period ending September 30, 1998, 0.375% and (b) thereafter, the
percentage set forth in the following table opposite the applicable Leverage
Ratio for the four fiscal quarters of the Borrower most recently completed on
the daily amount by which such Bank's RC Commitment exceeds the sum of (i) the
aggregate unpaid principal amount at such time of the RC Loans of such Bank and
(ii) the aggregate at such time of the Letter of Credit Amounts of such Bank,
for each day from the Agreement Date through the RC Termination Date, payable on
successive Payment Dates, on the RC Termination Date and on the date of any
reduction of such RC Commitments (to the extent accrued and unpaid on the amount
of such reduction):
<TABLE>
<CAPTION>
Applicable RC Commitment
Leverage Ratio Fee Percentage
- -------------------------------------------- --------------------------------------------
<S> <C>
greater than or equal to 5.00 : 1.00 0.375%
less than 5.00 : 1.00 but greater than or equal to 3.00 : 1.00 0.250%
less than 3.00 : 1.00 0.200%
</TABLE>
Not later than three Business Days after receipt by the Administrative
Agent of the financial statements required to be delivered pursuant to Section
5.01(a) or (b) for any fiscal quarter of the Borrower, the Administrative Agent
shall determine the Leverage Ratio for the applicable period and shall promptly
notify the Borrower and the Banks of such determination and of any change in the
commitment fee payable hereunder resulting therefrom; provided that if such
--------
financial statements are not delivered on or prior to the date when due, during
the period from the date when due to the date that is three Business Days after
such financial statements are so delivered, the commitment fee payable hereunder
shall be at a rate per annum equal to 0.375%. Any change in the commitment fee
(other than one pursuant to the proviso to the immediately preceding sentence)
-------
shall be effective as of the date the Administrative Agent so notifies the
Borrower and the Banks and such new commitment fees shall continue in effect
until
15
<PAGE>
the effective date of the next redetermination in accordance with this Section,
and shall not be retroactive. Each determination of the Leverage Ratio and
commitment fees by the Administrative Agent in accordance with this Section
shall be conclusive and binding on the Borrower and the Banks absent manifest
error.
(b) Letter of Credit Fees.
---------------------
(i) Issuing Bank Fees.
-----------------
The Borrower shall pay to the Issuing Bank, for its own account (A) at
the time of (x) the issuance of each Letter of Credit and (y) any extension of
the expiry date of such Letter of Credit, an issuing bank fee equal to the
greater of (1) 0.15% of the face amount of such Letter of Credit and (2) $5,000
and (B) from time to time, such normal and customary charges, fees, commissions,
costs and expenses as are incurred or charged by the Issuing Bank in issuing,
re-confirming, effecting payment under, amending, transferring or otherwise
administering any Letter of Credit.
(ii) Participating Bank Fees.
-----------------------
The Borrower shall pay to the Administrative Agent for the respective
accounts of the Participating Banks having LC Participations in any Letters of
Credit, a letter of credit fee in an amount per annum equal to the applicable
Eurodollar Rate Margin on the daily Letter of Credit Amount of each such
Participating Bank. Such fee shall be payable on successive Payment Dates
(commencing with the first Payment Date occurring after the issuance of each
Letter of Credit) and on the date on which each Letter of Credit expires
(whether or not such date would otherwise be a Payment Date).
Section 1.16 Computation of Interest and Fees.
--------------------------------
Interest calculated on the basis of the Eurodollar Rate or the Federal
Funds Rate shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed. Interest calculated on the basis of the Prime
Rate, fees payable pursuant to Section 1.15 and, unless otherwise agreed by the
Borrower and the Administrative Agent, Agreed Rate Loans, shall be computed on
the basis of a year of 365 or 366 days, as applicable, and paid for the actual
number of days elapsed. Interest for any period shall be calculated from and
including the first day thereof to but excluding the last day thereof.
Section 1.17 Evidence of Indebtedness.
------------------------
Each Bank's Loans (including the Swing Line Bank) and the Borrower's
obligation to repay such Loans with interest in accordance with the terms of
this Agreement shall be evidenced by this Agreement, the records of such Bank
and (a) in the case of Term A Loans, a single Term A Note payable to the order
of such Bank which, subject to Section 10.20, may be a Registered Note, (b) in
the case of Term B Loans, a single Term B Note payable to the order of such Bank
which, subject to Section 10.20, may be a Registered Note, (c) in the case of RC
Loans, a single RC Note payable to the order of such Bank which, subject to
Section 10.20, may be a Registered Note and (d) in the case of Swing Loans, a
Swing Loan Note payable to the order of the Swing Line Bank. The records of
each Bank shall, absent manifest error, be prima facie evidence of such Bank's
Loans and accrued interest thereon and of all payments made in respect thereof.
Drawings, Contingent Reimbursement Obligations and LC Participations, and the
Borrower's obligations to repay Drawings with interest in accordance with the
terms of this Agreement and to prepay Contingent Reimbursement Obligations,
shall be evidenced by this Agreement and the records of the Issuing Bank. The
records of the Issuing Bank shall, absent manifest error, be prima facie
evidence of, with respect to each Letter of Credit, the amount of Drawings.
Swing Line Participations shall be evidenced by this Agreement, the
participation certificates furnished by the Swing Line Bank pursuant to Section
1.05(b)(ii)(A), if any, and the records of the Swing Line Bank.
16
<PAGE>
Section 1.18 Payments by the Borrower.
------------------------
(a) Time, Place and Manner.
----------------------
All payments due to the Administrative Agent under the Borrower Loan
Documents shall be made to the Administrative Agent at the Administrative
Agent's Office or at such other address as the Administrative Agent may
designate by notice to the Borrower. All payments due to the Issuing Bank under
the Borrower Loan Documents by the Borrower or any Bank shall be made to the
Issuing Bank at the Issuing Bank's Office or to such other Person or at such
other address as the Issuing Bank may designate by notice to the Borrower or
such Bank, as the case may be. All payments due to any Bank under the Borrower
Loan Documents shall, in the case of payments by the Borrower on account of
principal of or interest on the Loans (including Swing Loans, so long as the
Bank that is the Swing Line Bank is also the Administrative Agent) or fees be
made to the Administrative Agent at the Administrative Agent's Office and in the
case of all other payments (including payments of principal of, and interest on,
Swing Loans, if the Bank that is the Swing Line Bank is not the Administrative
Agent), be made directly to such Bank at its Domestic Lending Office or such
other address as such Bank may designate. All payments due to any Bank under the
Borrower Loan Documents, whether made to the Administrative Agent or directly to
such Bank, shall be made for the account of, in the case of payments in respect
of Eurodollar Rate Loans, such Bank's Eurodollar Lending Office and, in the case
of all other payments, such Bank's Domestic Lending Office. A payment, other
than a payment on account of a Drawing, shall not be deemed to have been made on
any day unless such payment is received by the required Person, at the required
place of payment, in Dollars in funds immediately available to the
Administrative Agent at such place, no later than 12:00 noon on such day. A
payment on account of a Drawing shall not be deemed to have been made on any day
unless such payment is received by the Issuing Bank at the required place of
payment, in Dollars in funds immediately available to the Issuing Bank at such
place, no later than, in the case of payments by the Borrower, the times
specified in Section 1.09(b)(i) and, in the case of payments by a Bank, the
times specified in Section 1.10(b).
(b) No Reductions.
-------------
All payments due to the Administrative Agent, the Issuing Bank or any
Bank under the Borrower Loan Documents, and all other terms, conditions,
covenants and agreements to be observed and performed by the Borrower
thereunder, all payments due to the Issuing Bank by a Bank and all payments due
to the Swing Line Bank by a Bank, shall be made, observed or performed by the
Borrower or such Bank, as the case may be, without any reduction or deduction
whatsoever, including any reduction or deduction for any set-off, recoupment,
counterclaim (whether sounding in tort, contract or otherwise) or Tax, except in
the case of payments by the Borrower, subject to Section 1.20, for any
withholding or deduction for Taxes required to be withheld or deducted under
Applicable Law; provided that no payment by any Person to another Person shall
--------
constitute a waiver or release by the Person making such payment of any right it
may have against the Person receiving such payment.
(c) Extension of Payment Dates.
--------------------------
Whenever any payment to the Administrative Agent, the Issuing Bank,
the Swing Line Bank or any Bank under the Borrower Loan Documents would
otherwise be due (except by reason of acceleration) on a day that is not a
Business Day, or, in the case of payments of the principal of Eurodollar Rate
Loans, a Eurodollar Business Day, such payment shall instead be due on the next
succeeding Business or Eurodollar Business Day, as the case may be, unless, in
the case of a payment of the principal of a Eurodollar Rate Loan, such extension
would cause payment to be due in the next succeeding calendar month, in which
case such due date shall be advanced to the next preceding Eurodollar Business
Day. If the date
17
<PAGE>
any payment under the Borrower Loan Documents is due is extended (whether by
operation of any Borrower Loan Document, Applicable Law or otherwise), such
payment shall bear interest for such extended time at the rate of interest
applicable hereunder.
Section 1.19 Distribution of Payments by the Administrative Agent.
----------------------------------------------------
(a) The Administrative Agent shall promptly distribute to each Bank
its ratable share of each payment received by the Administrative Agent under the
Loan Documents for the account of the Banks by credit to an account of such Bank
at the Administrative Agent's Office or by wire transfer to an account of such
Bank at an office of any other commercial bank located in the United States of
America.
(b) Unless the Administrative Agent shall have received notice from
the applicable Loan Party prior to the date on which any payment is due to the
Banks under the Loan Documents that such Loan Party will not make such payment
in full, the Administrative Agent may assume that such Loan Party has made such
payment in full to the Administrative Agent on such date and the Administrative
Agent in its sole discretion may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date a corresponding amount with respect to
the amount then due such Bank. If and to the extent such Loan Party shall not
have so made such payment in full to the Administrative Agent and the
Administrative Agent shall have so distributed to any Bank a corresponding
amount, such Bank shall, on demand, repay to the Administrative Agent the amount
so distributed together with interest thereon, for each day from the date such
amount is distributed to such Bank until the date such Bank repays such amount
to the Administrative Agent, at the Federal Funds Rate until (and including) the
third Business Day after demand is made and thereafter at the Base Rate.
Section 1.20 Taxes.
-----
(a) Taxes Payable by the Borrower.
-----------------------------
If under Applicable Law any Tax is required to be withheld or deducted
from, or is otherwise payable by the Borrower in connection with, any payment to
the Administrative Agent, the Issuing Bank, the Swing Line Bank or any Bank
under the Loan Documents, the Borrower (A) shall (1) if so required, withhold or
deduct the amount of such Tax from such payment and, in any case, pay such Tax
to the appropriate taxing authority in accordance with Applicable Law and (2)
indemnify the Administrative Agent, the Issuing Bank, the Swing Line Bank or
such Bank in accordance with the provisions of Section 10.02(a) against its
failure so to do and (B) shall pay to the Administrative Agent, the Issuing
Bank, the Swing Line Bank or such Bank such additional amounts as may be
necessary so that the net amount received by the Administrative Agent, the
Issuing Bank, the Swing Line Bank or such Bank with respect to such payment,
after withholding or deducting all Taxes required to be withheld or deducted, is
equal to the full amount payable under the Loan Documents less any Bank Taxes
required to be withheld or deducted, or otherwise payable by the Borrower. If
any Tax is withheld or deducted from, or is otherwise payable by the Borrower in
connection with, any payment payable to the Administrative Agent, the Issuing
Bank, the Swing Line Bank or any Bank under the Loan Documents, the Borrower
shall, as soon as possible after the date of such payment, furnish to the
Administrative Agent, the Issuing Bank, the Swing Line Bank or such Bank the
original or a certified copy of a receipt for such Tax from the applicable
taxing authority. If any payment due to the Administrative Agent, the Issuing
Bank, the Swing Line Bank or any Bank under the Loan Documents is or is expected
to be made without withholding or deducting therefrom, or otherwise paying in
connection therewith, any Tax payable to any taxing authority, the Borrower
18
<PAGE>
shall, within 30 days after any request from the Administrative Agent, furnish
to the Administrative Agent a certificate from such taxing authority, or an
opinion of counsel acceptable to the Administrative Agent, in either case
stating that no Tax payable to such taxing authority was or is, as the case may
be, required to be withheld or deducted from, or otherwise paid by the Borrower
in connection with, such payment.
(b) Taxes Payable by the Administrative Agent, the Issuing Bank or any
------------------------------------------------------------------
Bank.
- ----
The Borrower shall, promptly upon request by the Administrative Agent,
the Issuing Bank, the Swing Line Bank or any Bank for the payment thereof, pay
to the Administrative Agent, the Issuing Bank, the Swing Line Bank or such Bank
(A) all Taxes (other than Bank Taxes) payable by the Administrative Agent, the
Issuing Bank or such Bank with respect to any payment due to the Administrative
Agent, the Issuing Bank, the Swing Line Bank or such Bank under the Loan
Documents and (B) all Taxes payable by the Administrative Agent, the Issuing
Bank, the Swing Line Bank or such Bank as a result of payments made by the
Borrower (whether made to a taxing authority or to the Administrative Agent, the
Issuing Bank or such Bank) pursuant to this Section 1.20(b).
(c) Exemption from U.S. Withholding Taxes.
-------------------------------------
There shall be submitted to the Borrower and the Administrative Agent
(A) on or before the first date that interest or fees are payable to such Bank
under the Loan Documents, (1) if at the time the same are applicable (aa) by
each of the Issuing Bank and the Swing Line Bank if it is not, and by each Bank
that is not, a United States Person, two duly completed and signed copies of
Internal Revenue Service Form 1001 or 4224, in either case entitling such Person
to a complete exemption from withholding of any United States federal income
taxes on all amounts to be received by such Person under the Loan Documents or
(bb) by each of the Issuing Bank and the Swing Line Bank if it is, and by each
Bank that is, a Non-US Bank (x) a duly completed Internal Revenue Service Form
W-8 and (y) a certification in the form of Schedule 1.20(c) that such Person is
----------------
a Non-US Bank or (2) if at the time any of the foregoing are inapplicable, duly
completed and signed copies of such form, if any, as entitles such Person to
exemption from withholding of United States federal income taxes to the maximum
extent to which such Person is then entitled under Applicable Law and (B) from
time to time thereafter, prior to the expiration or obsolescence of any
previously delivered form or upon any previously delivered form becoming
inaccurate or inapplicable, such further duly completed and signed copies of
such form, if any, as entitles such Person to exemption from withholding of
United States federal income taxes to the maximum extent to which such Person is
then entitled under Applicable Law. Each such Person shall promptly notify the
Borrower and the Administrative Agent if (A) it is required to withdraw or
cancel any form or certificate previously submitted by it or any such form or
certificate has otherwise become ineffective or inaccurate or (B) payments to it
are or will be subject to withholding of United States federal income taxes to a
greater extent than the extent to which payments to it were previously subject.
Upon the request of the Borrower or the Administrative Agent, each such Person
that is a United States Person shall from time to time submit to the Borrower
and the Administrative Agent a certificate to the effect that it is such a
United States Person and a duly completed Internal Revenue Service Form W-9 (and
from time to time thereafter, any appropriate form that identifies such Person
as a United States Person, as required under Applicable Law).
19
<PAGE>
(d) Limitations.
-----------
Notwithstanding anything to the contrary contained herein, the
Borrower shall not be required to pay any additional amount in respect of
withholding taxes pursuant to this Section 1.20 to any Bank (A) in respect of
any Bank Tax, (B) except to the extent such Taxes are required to be withheld as
a result of (1) in the case of a Person that is a Bank on the Agreement Date, a
Regulatory Change Enacted after the Agreement Date and (2) in the case of a
Person that becomes a Bank after the Agreement Date, a Regulatory Change Enacted
after such Person becomes a Bank or (C) to the extent such withholding is
required because such Bank has failed (x) to submit any form or certificate that
it is required to submit pursuant to Section 1.20(c) or (y) in the case of a
Bank that is a Non-US Bank, to cause its Notes to be issued as Registered Notes.
Section 1.21 Pro Rata Treatment.
------------------
Except to the extent otherwise provided herein, (a) Term A Loans, Term B
Loans, Term B Loans and RC Loans of each Type to be made on any day shall be
made by the Banks pro rata in accordance with their respective Term A
Commitments, Term B Commitments or RC Commitments, as the case may be, (b) Term
A Loans, Term B Loans and RC Loans of the Banks shall be converted and continued
pro rata in accordance with their respective amounts of Term Loans or RC Loans,
as the case may be, of the Type and, in the case of Eurodollar Rate Loans,
having the Interest Period being so converted or continued, (c) each reduction
in the Term A Commitments, Term B Commitments or the RC Commitments shall be
made pro rata in accordance with the respective amounts thereof, (d) each
payment of the principal of or interest on the Term A Loans, Term B Loans, RC
Loans or of fees (other than Issuing Bank fees pursuant to Section 1.15(b)(i)
and Participating Bank fees payable pursuant to Section 1.15(b)(ii)) shall be
made for the account of the Banks pro rata in accordance with the respective
amounts thereof then due and payable and (e) each payment of Participating Bank
fees payable with respect to a Letter of Credit pursuant to Section 1.15(b)(ii)
shall be made for the account of the Participating Banks having LC
Participations in such Letter of Credit pro rata in accordance with their
respective Letter of Credit Amounts with respect to such Letter of Credit.
ARTICLE 2
---------
CONDITIONS TO CREDIT EXTENSIONS
-------------------------------
Section 2.01 Conditions to Initial Credit Extension.
--------------------------------------
The obligation of each Bank, including the Swing Line Bank, to make its
initial Loan (or, if no Loans have been made at such time, the obligation of the
Issuing Bank to issue the initial Letter of Credit) is subject to the
determination of the Administrative Agent, in its reasonable discretion, that
each of the following conditions has been fulfilled:
(a) the Administrative Agent shall have received each of the
following, in form and substance and, in the case of the materials referred to
in clauses (i), (ii), (iii), (vi) and (xvii), certified in a manner satisfactory
to it:
(i) a certificate of the Secretary, an Assistant Secretary or other
officer acceptable to the Administrative Agent of each Loan Party, dated
the requested date for the making of such Credit Extension substantially in
the form of Schedule 2.01(a)(i), to which shall be attached copies of the
-------------------
resolutions (or in the case of MAC Inc. and
20
<PAGE>
SOFTBANK Corp. the minutes) and by-laws (or in the case of MAC Inc. and
SOFTBANK Corp. the Articles of Incorporation) referred to in such
certificate;
(ii) a copy of the certificate of incorporation of each Loan Party
and each Subsidiary the capital stock of which is pledged pursuant to any
Pledge Agreement, that is a corporation (or in the case of MAC Inc. and
SOFTBANK Corp., the Commercial Register) certified, as of a recent date, by
the Secretary of State, the Legal Affairs Bureau or other appropriate
official of such Person's jurisdiction of incorporation;
(iii) a good standing certificate with respect to each Loan Party
and each Subsidiary the capital stock of which is pledged pursuant to any
Pledge Agreement, that is a corporation, issued as of a recent date by the
Secretary of State or other appropriate official of such Person's
jurisdiction of incorporation, together with a telegram from such Secretary
of State or other official, updating the information in such certificate;
(iv) opinions of counsel for each Loan Party, in form and substance
and from counsel satisfactory to, and with respect to the jurisdictions
required by, the Administrative Agent, dated the requested date for the
making of such Credit Extension;
(v) a certificate of the President or Chief Financial Officer of
the Borrower, dated the requested date for the making of such Credit
Extension, setting forth the manner and degree of detail in which the
Borrower will make the calculations required by paragraph 3 of Schedule
--------
5.01(b);
-------
(vi) a copy of each Governmental Approval, Governmental
Registration and other consent or approval listed on Schedule 3.03;
-------------
(vii) completed Schedules 3.02, 3.03, 3.06, 4.05, 4.06, 4.07, 4.11,
-------------- ---- ---- ---- ---- ---- ----
4.12 and 9.01;
---- ----
(viii) a duly executed Term A Note to the order of each Bank;
(ix) a duly executed Term B Note to the order of each Bank;
(x) a duly executed RC Note to the order of each Bank;
(xi) a duly executed Swing Loan Note to the order of the Swing Line
Bank;
(xii) a duly executed copy of each Subordination Agreement;
(xiii) a duly executed Pledge Agreement delivered by the Borrower
and each Subsidiary that is a United States Person owning Capital
Securities of any other Subsidiary that is not a Non-Material Subsidiary
and is either a United States Person or ZD Holdings (UK) Ltd. (subject in
the case of ZD Holdings (UK) Ltd. to the provisio in clause (a)(i) of
Section 4.05), and a certificate of a Responsible Officer of the Borrower
certifying that all Subsidiaries whose Capital Securities are not pledged
pursuant to a Pledge Agreement as of the Agreement Date are Non-Material
Subsidiaries;
21
<PAGE>
(xiv) either (A) such duly executed UCC-1 financing statements and
other documents as the Administrative Agent may request, the filing or
recordation of which is necessary or appropriate in the Administrative
Agent's determination to create or perfect a security interest in the
Collateral under Applicable Law or (B) evidence of the filing or
recordation of the same in such offices as the Administrative Agent shall
have specified;
(xv) such instruments and other documents as the Administrative
Agent may request, the execution, delivery, filing or possession of which
is necessary or appropriate in the Administrative Agent's determination to
create or perfect a security interest in the Collateral under Applicable
Law, including but not limited to share certificates and stock powers duly
executed in blank with respect to the Capital Securities subject to the
Security Interest;
(xvi) such instruments of termination, release and discharge and
all other documents, including UCC-3 financing statements, as the
Administrative Agent may request, the delivery of which is necessary or
appropriate in the Administrative Agent's determination to effect the
termination of all Liens to which Section 4.07 is applicable other than
Permitted Liens, and such judgment and lien searches as shall be reasonably
required by the Administrative Agent;
(xvii) a copy of each of the Registration Statement, the Indenture
and the Affiliate Note, each in form and substance and certified in a
manner satisfactory to the Administrative Agent; and
(xviii) such additional materials as any Reviewing Agent may have
requested pursuant to Section 5.01(d);
(b) the Administrative Agent shall be satisfied that, prior to or
substantially simultaneously with the Credit Extensions requested to be made on
such date, (i) all outstanding Predecessor Indebtedness will be repaid in full,
(ii) all commitments for the making of loans or extensions of credit under each
Contract evidencing Predecessor Indebtedness will terminate and (iii) all
promissory notes evidencing loans or extensions of credit under each Contract
evidencing Predecessor Indebtedness shall be delivered to the Borrower;
(c) the Offering shall have been, or shall be simultaneously,
consummated as described in the Registration Statement, and the Administrative
Agent shall have received a certificate of a Responsible Officer of the Borrower
certifying that such issuance shall have resulted in a gross cash proceeds of
not less than $400,000,000;
(d) Subordinated Notes shall have been, or shall be simultaneously,
sold by the Borrower in accordance with the terms of the Indenture and the
Administrative Agent shall have received a certificate of a Responsible Officer
of the Borrower certifying that the aggregate principal amount of Subordinated
Notes so sold were not less than $250,000,000;
(e) the Reorganization shall have been, or shall be simultaneously,
consummated, and the Administrative Agent shall have received a certificate of a
Responsible Officer of the Borrower certifying that the Reorganization shall
have been consummated, in all material respects in accordance with the
description thereof in the Registration Statement;
22
<PAGE>
(f) the acceptance by CT Corporation System of its appointment as
"Process Agent" under each Subordination Agreement that requires such
appointment;
(g) the Administrative Agent shall have received copies, certified in
a manner satisfactory to it, of all notes, bonds, debentures and other
instruments and securities that evidence Indebtedness of the Borrower listed on
Schedule 4.05, and all Contracts under which such Indebtedness is issued or
- -------------
which otherwise relate to such Indebtedness; and
(h) the Administrative Agent shall have received a certificate from a
Responsible Officer of the Borrower certifying that the funds available to the
Borrower on the Agreement Date, and that are referred to under the heading "Use
of Proceeds" in the Registration Statement, have been or shall be applied
substantially as set forth under such heading.
Section 2.02 Conditions to Each Loan.
-----------------------
The obligation of each Bank, including the Issuing Bank and the Swing Line
Bank, to make each Credit Extension, including its initial Credit Extension
(other than, unless a Bankruptcy Default exists, RC Loans to be made pursuant to
a request under Section 1.04(d) or Section 1.05(b)(i)), is subject to each of
the following conditions:
(a) such Bank shall have received a notice of or request for a
borrowing, or an Application for the issuance of a Letter of Credit, with
respect to such Credit Extension complying with the requirements of Section 1.02
or Section 1.08, as the case may be;
(b) each Loan Document Representation and Warranty shall be true and
correct at and as of the time such Credit Extension is to be made, both with and
without giving effect to such Credit Extension and all other Credit Extensions
to be made at such time and to the application of the proceeds thereof; and
(c) no Default shall exist at the time such Credit Extension is to be
made or would result from the making of such Credit Extension and all other
simultaneous Credit Extensions to be made at such time or from the application
of the proceeds thereof.
Except to the extent that the Borrower shall have disclosed in the
applicable notice of borrowing or Application, or in a subsequent notice given
to the Administrative Agent prior to 5:00 p.m. on the Business Day before the
requested date for the making of the requested Credit Extension, that a
condition specified in clause (b) or (c) above will not be fulfilled as of the
requested time for the making of such Credit Extension, the Borrower shall be
deemed to have made a Representation and Warranty as of the time of the making
of such Credit Extension that the conditions specified in such clauses have been
fulfilled as of such time. No such disclosure by the Borrower that a condition
specified in clause (b) or (c) above will not be fulfilled as of the requested
time for the making of the requested Credit Extension shall affect the right of
each Bank, the Swing Line Bank or the Issuing Bank, as the case may be, to not
make the Credit Extension requested to be made by it if, in such Person's
determination, such condition has not been fulfilled at such time.
23
<PAGE>
ARTICLE 3
---------
CERTAIN REPRESENTATIONS AND WARRANTIES
--------------------------------------
In order to induce each Bank, the Swing Line Bank and the Issuing Bank to
enter into this Agreement and to make each Credit Extension requested of it, the
Borrower represents and warrants as follows:
Section 3.01 Organization; Power; Qualification.
----------------------------------
The Borrower and each Consolidated Subsidiary are legal entities, duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of formation, have the power and authority to own their
respective properties and to carry on their respective businesses as now being
and hereafter proposed to be conducted and are duly qualified and in good
standing as foreign entities, and are authorized to do business, in all
jurisdictions in which the character of their respective properties or the
nature of their respective businesses requires such qualification or
authorization, except for qualifications and authorizations the lack of which,
singly or in the aggregate, has not had and could not reasonably be expected to
have a Materially Adverse Effect on the Borrower and the Consolidated
Subsidiaries taken as a whole.
Section 3.02 Subsidiaries.
------------
Schedule 3.02 sets forth, as of the Agreement Date, all of the Subsidiaries
-------------
of the Borrower, their jurisdictions of formation, the percentages of the
various classes of their Capital Securities owned by the Borrower or any
Subsidiary and which Subsidiaries are Consolidated Subsidiaries. The Borrower
or a Subsidiary, as the case may be, has the unrestricted right to vote, and
(subject to limitations imposed by Applicable Law) to receive dividends and
distributions on, all Capital Securities indicated on Schedule 3.02 as owned by
-------------
the Borrower or such Subsidiary. All such Capital Securities have been duly
authorized and issued and are fully paid and nonassessable.
Section 3.03 Authorization; Enforceability; Required Consents; Absence of
------------------------------------------------------------
Conflicts.
- ---------
The Borrower and each Loan Party has the power, and has taken all necessary
action (including, if a corporation, any necessary stockholder action) to
authorize it, to execute, deliver and perform in accordance with their
respective terms the Loan Documents to which it is a party and, in the case of
the Borrower, to borrow hereunder in the unused amount of the Commitments and to
have Letters of Credit issued for its accounts in an amount not exceeding the LC
Sublimit. This Agreement has been, and each of the other Loan Documents to
which the Borrower or any Loan Party is a party when delivered to the
Administrative Agent will have been, duly executed and delivered by the Borrower
and each Loan Party that is a party thereto and is, or when so delivered will
be, a legal, valid and binding obligation of such Loan Party, enforceable
against such Loan Party in accordance with its terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally. The execution,
delivery and performance in accordance with their respective terms by the
Borrower and the Loan Parties of the Loan Documents to which they are parties,
and each borrowing hereunder, whether or not in the amount of the unused
Commitments and the issuance of each Letter of Credit hereunder, whether or not
up to the LC Sublimit, do not and (absent any change in any Applicable Law or
applicable Contract) will not (a) require any Governmental Approval,
Governmental Registration or any other consent or approval, including any
consent or approval of the stockholders or partners, as the case may be, of the
Borrower or
24
<PAGE>
any Loan Party, other than Governmental Approvals, Governmental Registrations
and other consents and approvals that have been obtained, are final and not
subject to review on appeal or to collateral attack, are in full force and
effect and, in the case of any such required under any Applicable Law or
Contract as in effect on the Agreement Date, are listed on Schedule 3.03 or
-------------
(b) violate, conflict with, result in a breach of, constitute a default under or
result in or require the creation of any Lien (other than the Security Interest)
upon any assets of the Borrower or any Affiliate under (i) any Contract to which
the Borrower or any Affiliate is a party or by which the Borrower or any
Affiliate or any of their respective properties may be bound or (ii) any
Applicable Law.
Section 3.04 Affiliate Indebtedness and Investments.
---------------------------------------
(a) Schedule 4.05 sets forth (i) all Affiliate Indebtedness of the
-------------
Borrower outstanding on the Agreement Date in an original aggregate principal
amount equal to $1,000,000 or more, (ii) all other Indebtedness of the Borrower
and the Consolidated Subsidiaries outstanding on the Agreement Date in an
original aggregate principal amount equal to $1,000,000 or more and (iii) each
such Person that such Indebtedness is payable to or the indenture or similar
instrument under which such Indebtedness was issued.
(b) Schedule 4.11 sets forth all Investments of the Borrower and the
-------------
Consolidated Subsidiaries outstanding on the Agreement Date the Investment
Amount of which is equal to $1,000,000 or more.
Section 3.05 Taxes.
-----
(a) The Borrower and each Consolidated Subsidiary has timely filed
all Tax returns required to have been filed by them under Applicable Law (taking
into account any extension of time in which to file) except for returns (other
than U.S. federal income tax returns) which show or when completed would show a
liability for Taxes less than $250,000, (b) all such filed returns correctly
reflect the facts concerning the income, business, assets, properties,
operations, activities and status of the Borrower and each Consolidated
Subsidiary, (c) the Borrower and each Consolidated Subsidiary has timely paid
all Taxes (except for Taxes the failure of timely payment of which does not
contravene Section 4.01) that are shown as due on such filed returns or that
have been assessed against them and (d) to the extent required by Generally
Accepted Accounting Principles, reserved against all Taxes that are payable by
it but are not yet due or that are due and payable by it or have been assessed
against it but have not yet been paid.
Section 3.06 Litigation.
----------
Except as set forth on Schedule 3.06, there are not, in any court or before
-------------
any arbitrator of any kind or before or by any governmental or non-governmental
body, any actions, suits or proceedings pending or threatened (nor, to the
knowledge of the Borrower or any Subsidiary is there any basis therefor) against
or in any other way relating to or affecting (a) the validity or enforceability
of any Loan Document or (b) the Borrower or any Subsidiary or any of their
respective businesses or properties, except actions, suits or proceedings that
could not reasonably be expected to be adversely determined and that, in the
case of those pending against the Borrower or any Subsidiary, if adversely
determined, could not reasonably be expected to have, singly or in the
aggregate, a Materially Adverse Effect on the Borrower and the Consolidated
Subsidiaries taken as a whole.
25
<PAGE>
Section 3.07 Burdensome Provisions.
---------------------
Neither the Borrower nor any Subsidiary is a party to or bound by any
Contract or Applicable Law, compliance with which could reasonably be expected
to have a Materially Adverse Effect on (a) the Borrower and the Consolidated
Subsidiaries taken as a whole or (b) any Loan Document.
Section 3.08 No Adverse Change or Event.
--------------------------
Since December 31, 1997, no change in the business, assets, Liabilities,
financial condition, results of operations or business prospects of the Borrower
or any Consolidated Subsidiary has occurred, and no event has occurred or failed
to occur, that has had or could reasonably be expected to have, either alone or
in conjunction with all other such changes, events and failures, a Materially
Adverse Effect on (a) the Borrower and the Consolidated Subsidiaries taken as a
whole or (b) any Loan Document. Such an adverse change may have occurred, and
such an event may have occurred or failed to occur, at any particular time
notwithstanding the fact that at such time no Default shall exist.
Section 3.09 Guarantors.
----------
As of the Agreement Date, the Guarantors listed on Schedule 9.01 are all of
-------------
the Wholly Owned Subsidiaries of the Borrower that are United States Persons.
Section 3.10 Investment Company Act.
----------------------
Neither the Borrower nor any Consolidated Subsidiary is an "investment
company" or a Person "controlled" by an "investment company", within the meaning
of the Investment Company Act of 1940.
Section 3.11 Registration Statement.
----------------------
The Registration Statement does not contain any misstatement of a material
fact or omit any statement of a material fact necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE 4
---------
CERTAIN COVENANTS
-----------------
From the Agreement Date and until the Repayment Date,
A. The Borrower shall and shall cause each Consolidated Subsidiary to:
- -- ------------------------------------------------------------------
Section 4.01 Preservation of Existence and Properties, Scope of Business,
------------------------------------------------------------
Compliance with Law, Payment of Taxes and Claims, Preservation of
- -----------------------------------------------------------------
Enforceability.
(a) Preserve and maintain its corporate or partnership existence, as
the case may be, and all of its other franchises, licenses, rights and
privileges, (b) preserve, protect and obtain all Intellectual Property, and
preserve and maintain in good repair, working order and condition all other
properties, required for the conduct of its business, (c) comply with Applicable
Law, (d) pay or discharge when due all Taxes (other than Taxes that are the
subject of a good faith contest as to the fact or the amount of liability and,
to the extent required by Generally Accepted Accounting Principles, have been
reserved against on the books of the Person that has failed to discharge such
Tax) and all Liabilities that are or might become Liens on any of its properties
and (e) take all action and obtain all consents and Governmental Approvals and
make all Governmental Registrations required so that its obligations under the
Loan Documents will at all times be legal, valid and
26
<PAGE>
binding and enforceable in accordance with their respective terms, except that
this Section 4.01 (other than clauses (a), insofar as it requires any Person to
preserve its corporate or partnership existence and (e)) shall not apply in any
circumstance where noncompliance, together with all other noncompliances with
this Section 4.01, could not reasonably be expected to have a Materially Adverse
Effect on (x) the Borrower and the Consolidated Subsidiaries taken as a whole,
(y) any Loan Document or (z) the Collateral.
Section 4.02 Insurance.
---------
Maintain insurance with responsible insurance companies against at least
such risks and in at least such amounts as is customarily maintained by similar
businesses, or as may be required by Applicable Law.
Section 4.03 Use of Proceeds.
---------------
Use (a) the proceeds of the Loans only for (i) the repayment of Drawings
together with interest thereon, (ii) the repayment of Swing Loans, (iii) the
refinancing of Predecessor Indebtedness and (iv) the general corporate purposes
of the Borrower, including any acquisition or disposition of assets not
prohibited by the terms of this Agreement, and (b) the Letters of Credit only
for the purposes specified in Section 1.07(b). None of the proceeds of any of
the Loans and none of the Letters of Credit, directly or indirectly, shall be
used to purchase or carry, or to reduce or retire or refinance any credit
incurred to purchase or carry, any margin stock (within the meaning of
Regulations U and X of the Board of Governors of the Federal Reserve System) or
to extend credit to others for the purpose of purchasing or carrying any margin
stock. If requested by any Bank, the Borrower shall complete and sign Part I of
a copy of Federal Reserve Form U-1 referred to in Regulation U and deliver such
copy to such Bank.
Section 4.04 Subsidiaries and Wholly Owned Subsidiaries.
-------------------------------------------
(a) Subsidiaries.
------------
Within five Business Days after the date the Borrower or any
Subsidiary forms or acquires any new Subsidiary that is not a Non-Material
Subsidiary, and with respect to a Subsidiary that ceases to be a Non-Material
Subsidiary, promptly after such Subsidiary ceases to be a Non-Material
Subsidiary, (i) grant to the Secured Party a fully perfected security interest,
not subject to any prior Lien, in all of the Capital Securities owned by the
Borrower or any of its Subsidiaries, as the case may be, of any such Subsidiary,
as security for the Secured Obligations, provided that if such Subsidiary is not
--------
a United States Person, such security interest shall be granted in no more than
65% of the outstanding Capital Securities of such Subsidiary; without limiting
the generality of the foregoing, such requirement shall include (A) delivery to
the Secured Party of executed stock pledge agreements in form and substance
reasonably satisfactory to the Secured Party in respect of such Capital
Securities, (B) the delivery to the Secured Party of the stock certificates (if
any) evidencing such Capital Securities, together with any appropriate stock
powers duly executed in blank, (C) the delivery to the Administrative Agent of
an opinion of counsel to Borrower and relevant Subsidiaries as to such matters
as the Administrative Agent may reasonably request, (D) the delivery to the
Secured Party of charter documents and authorizing resolutions of the Borrower
and the relevant Subsidiaries and (E) the taking of such other action by the
Borrower and any Subsidiaries (including, without limitation, the obtaining of
any required consents) as the Administrative Agent may reasonably request in
connection with the grant to the Secured Party of an effective and fully
perfected security interest, not subject to any prior Lien, in such Capital
Securities, and (F) such certificates, resolutions, legal opinions, copies of
filings and notices and other materials, relating to such new Subsidiary, the
documents referred to above and the actions required thereunder, as the Secured
Party may reasonably
27
<PAGE>
request; provided that if a Default shall exist, the Administrative Agent may,
--------
in its sole and absolute discretion, require that the Borrower and each
Consolidated Subsidiary comply with the requirements of this Section 4.04(a)
with respect to the Capital Securities of any Subsidiary that is a Non-Material
Subsidiary.
(b) Wholly Owned Subsidiaries.
-------------------------
On or prior to the date that the Borrower or any Consolidated
Subsidiary forms or acquires any new Wholly Owned Subsidiary that is a United
States Person or any existing Subsidiary of the Borrower becomes a Wholly Owned
Subsidiary that is a United States Person, and promptly after any Wholly Owned
Subsidiary that is a United States Person ceases to be a Non-Material
Subsidiary, deliver to the Administrative Agent a Guarantor Supplement executed
by such Wholly Owned Subsidiary; provided that such Wholly Owned Subsidiary is
--------
not a Non-Material Subsidiary; and provided, further, that if a Default shall
-------- -------
exist, the Administrative Agent may, in its sole and absolute discretion,
require that any Wholly Owned Subsidiary comply with the requirements of this
Section 4.04(b) notwithstanding the immediately preceding proviso.
B. The Borrower shall not, and shall not permit any Consolidated Subsidiary to,
- -- ----------------------------------------------------------------------------
directly or indirectly:
- ----------------------
Section 4.05 Indebtedness.
------------
(a) Have any Indebtedness, at any time, except that this Section 4.05(a)
shall not apply to (i) the Loans and Drawings, (ii) Guaranties to which Section
4.06 is not applicable, (iii) the Affiliate Note, (iv) Purchase Money
Indebtedness in a principal amount not exceeding $50,000,000 outstanding at any
time in the aggregate for the Borrower and the Consolidated Subsidiaries, (v)
unsecured Indebtedness of the Borrower and the Consolidated Subsidiaries to
which Section 4.05(b) is not applicable by virtue of clause (i), (vi) New
Subordinated Indebtedness, (vii) InterCompany Indebtedness, (viii) the
Subordinated Notes and (ix) Indebtedness under interest rate, currency swap or
similar transactions entered into pursuant to Section 4.22; and
(b) Incur any Indebtedness, at any time, except that this Section 4.05(b) shall
not apply to (i) unsecured Indebtedness of the Borrower and the Consolidated
Subsidiaries in an aggregate principal amount, for the Borrower and the
Consolidated Subsidiaries, and together with the aggregate principal amount of
Indebtedness outstanding at such time that was incurred pursuant to this clause
(i), (A) not in excess of $35,000,000, of which not more than $25,000,000
aggregate principal amount may be Indebtedness of the Consolidated Subsidiaries,
if at the time of the incurrence of such Indebtedness the Leverage Ratio shall
be equal to or greater than 4.00 to 1.00 and (B) not in excess of $100,000,000,
of which not more than $50,000,000 aggregate principal amount may be
Indebtedness of the Consolidated Subsidiaries, if immediately before and after
the incurrence of such Indebtedness the Leverage Ratio shall be less than 4.00
to 1.00, provided that, in each case, no Default or Event of Default shall exist
--------
immediately prior to or after the incurrence of such Indebtedness, and (ii)
Indebtedness to which Section 4.05 (a) is not applicable by virtue of (i), (ii),
(iv), (vii) and (ix).
Section 4.06 Guaranties.
----------
Be obligated, at any time, in respect of any Guaranty, except that this
Section 4.06 shall not apply to (a) Existing Guaranties, (b) Permitted
Guaranties, (c) Letters of Credit and (d) other letters of credit in an
aggregate face amount not exceeding [$10,000,000] at any time.
28
<PAGE>
Section 4.07 Liens.
-----
Permit to exist, at any time, any Lien upon any of its properties or assets
of any character, whether now owned or hereafter acquired, or upon any income or
profits therefrom, except that this Section 4.07 shall not apply to Permitted
Liens.
Section 4.08 Restricted Payments.
-------------------
Make or declare or otherwise become obligated to make any Restricted
Payment, except that this Section 4.08 shall not apply:
(a) to Restricted Payments made by any Consolidated Subsidiary,
provided that, if any such Consolidated Subsidiary is not a Wholly Owned
- --------
Subsidiary, any Restricted Payment made by such Consolidated Subsidiary to a
Person other than the Borrower or another Consolidated Subsidiary shall be no
greater than such Person's share of such Restricted Payment if distributed to
the holders of such Consolidated Subsidiary's Capital Securities pro rata on the
basis of the relative amounts of such Capital Securities held by such holders
immediately prior to the making of such Restricted Payment;
(b) if the Leverage Ratio as at the end of any fiscal year (a
"Determination Year") of the Borrower, commencing with the Determination Year
- -------------------
ending December 31, 1999, shall be greater than or equal to 4.00 to 1.00 but
less than 5.00 to 1.00, to Restricted Payments during the fiscal year of the
Borrower next succeeding such Determination Year in an aggregate amount,
together with the aggregate amount of all Prepayments of Subordinated
Indebtedness made during such fiscal year to which Section 4.15 shall not be
applicable by virtue of clause (c) thereof ("Subordinated Payments"), not to
---------------------
exceed 25% of Consolidated Excess Cash Flow for such Determination Year;
provided that the Leverage Ratio immediately before and after the making of such
- --------
Restricted Payment shall be less than 5.00 to 1.00; and
(c) if the Leverage Ratio as at the end of any Determination Year,
commencing with the Determination Year ending December 31, 1999, shall be less
than 4.00:1.00, to any Restricted Payment made during the fiscal year of the
Borrower next succeeding such Determination Year, provided that the Leverage
--------
Ratio immediately before and after the making of such Restricted Payment shall
be less than 4.00 to 1.00;
provided, further, that in the case of any Restricted Payment made or to be made
- -------- -------
under subparagraph (b) or (c) above, no Default or Event of Default shall exist
immediately prior to or after the making of such Restricted Payment.
This Section 4.08 shall not prohibit the payment of a dividend that
constitutes a Restricted Payment if such Restricted Payment is made within 45
days of the declaration thereof and if this Section 4.08 did not prohibit such
Restricted Payment at the time of its declaration.
Section 4.09 Merger or Consolidation.
-----------------------
Merge or consolidate with any Person, except that, if after giving effect
thereto no Default would exist, this Section 4.09 shall not apply to (a) any
merger or consolidation of the Borrower with any one or more Wholly Owned
Subsidiaries and (b) any merger or consolidation of any Wholly Owned Subsidiary
with any one or more other Wholly Owned Subsidiaries; provided that if the
--------
Borrower is a party to such merger or consolidation the Borrower is the
surviving Person.
Section 4.10 Disposition of Assets.
---------------------
Sell, lease, license, transfer or otherwise dispose of any asset or any
interest therein, except that this Section 4.10 shall not apply to (a) any
29
<PAGE>
disposition of any asset or any interest therein in the ordinary course of
business, (b) any disposition of any obsolete or retired property not used or
useful in its business, (c) any disposition of any asset or any interest therein
by the Borrower or any Guarantor to the Borrower or any Guarantor, (d) any
disposition (i) of all of the issued and outstanding Capital Securities owned by
the Borrower and the Consolidated Subsidiaries of a Consolidated Subsidiary, or
(ii) all of the Borrower and the Consolidated Subsidiaries' interest in the
assets constituting a Business Unit of any Person, for cash in an amount not
less than the fair market value thereof, as determined in good faith by the
board of directors of the Borrower or the applicable Consolidated Subsidiary, so
long as (i) the EBITDA Percentage of such Consolidated Subsidiary or Business
Units so sold, together with the EBITDA Percentages of all such Consolidated
Subsidiaries and Business Units so sold (A) within the prior twelve calendar
month period does not exceed 20% and (B) after the Agreement Date does not
exceed 40% and (e) any transaction to which any of the other provisions of this
Agreement (other than Section 4.13) is by its express terms inapplicable;
provided, in each case, that no Default or Event of Default shall exist
- --------
immediately prior to or after such disposition. For this purpose, "fair market
value" of an asset means the fair market value of such asset at the time of
disposition of such asset as reasonably determined by, if the Person disposing
of such asset is a corporation, its board of directors, if such Person is a
partnership, its general partner or partners, and, if such person is a limited
liability company, its managing directors.
Section 4.11 Investments.
-----------
Make or acquire any Investment or Business Unit, except that this Section
4.11 shall not apply (a) to Money Market Investments, (b) to extensions of trade
credit in the ordinary course of business, but only if and so long as the same
are payable on customary trade terms, (c) to (i) loans and advances to employees
of the Borrower or any Consolidated Subsidiary in the ordinary course of
business in an aggregate amount not exceeding $5,000,000 outstanding at any time
in the aggregate for the Borrower and the Consolidated Subsidiary, and (ii)
Investments constituting Guaranties of loans and advances referred to in clause
(c)(i), (d) to Investments in the Borrower or a Consolidated Subsidiary by the
Borrower or a Consolidated Subsidiary, (e) in addition to the Guaranties
contemplated by clause (c)(ii), to Guaranties to which Section 4.06 is not
applicable, (f) to Existing Investments, (g) to Investments in MAC Inc. and ZDTV
made prior to the exercise by the Borrower of the ZDTV Option, for purposes of
effecting the transactions contemplated in the [License and Services Agreement]
in an aggregate Investment Amount not exceeding $35,000,000 outstanding at any
time, (h) to Business Units acquired from MAC Inc. pursuant to the exercise
after the Agreement Date by the Borrower of the ZDTV Option, (i) during any
fiscal quarter of the Borrower, (A) if the Leverage Ratio as of the end of each
of the two immediately preceding fiscal quarters of the Borrower shall be less
than or equal to 4.00 to 1.00, to
Like-Business Investments, provided that the Leverage Ratio immediately before
--------
and after the making of such Investment shall be less than 4.00 to 1.00, (B) if
the Leverage Ratio as of the end of either of the two immediately preceding
fiscal quarters of the Borrower shall be greater than 4.00 to 1.00, to Like-
Business Investments which at the time such Investments are made, together with
(x) the aggregate amount of Like-Business Investments outstanding at such time
pursuant to this subparagraph (B) and pursuant to subparagraphs (A) and (C) and
(y) the Investment Amount with respect to the exercise by the Borrower of the
ZDTV Option to the extent exceeding $100,000,000, do not exceed $150,000,000,
provided that the Leverage Ratio immediately before and after the making of
- --------
such Investment shall be less than 5.00 to 1.00, and (C) if the Leverage Ratio
as of the end of any immediately preceding fiscal quarter of the Borrower shall
be greater than 5.00 to 1.00, to
30
<PAGE>
Like-Business Investments which at the time such Investments are made, together
with (x) the aggregate amount of Like-Business Investments outstanding at such
time pursuant to this subparagraph (C) and pursuant to subparagraphs (A) and (B)
and (y) the Investment Amount with respect to the exercise by the Borrower of
the ZDTV Option to the extent exceeding $100,000,000, do not exceed
$100,000,000, and (j) to acquisitions of all of the outstanding Capital
Securities of any Persons engaged in the same lines of business as the Borrower
or all of the assets constituting a Business Unit of any Persons if such
Business Units are engaged in the same lines of business as the Borrower;
provided, in each case other than clause (f), that no Default or Event of
- --------
Default shall exist immediately prior to or after the making of such Investment;
and provided, further, that in each case other than clauses (f), (g), (h) and,
-------- -------
to the extent constituting the Investment Amount over $100,000,000 with respect
to the exercise by the Borrower of the ZDTV Option, clause (i), the aggregate
Investment Amount with respect to such Investments in Affiliates shall not
exceed $25,000,000 outstanding at any time.
Section 4.12 Benefit Plans.
-------------
(a) permit any Benefit Plan to be amended in any manner that would cause
the aggregate Unfunded Benefit Liabilities under all Existing Benefit Plans to
exceed $100,000,000 or (b) permit any Benefit Plan to have a Funded Current
Liability Percentage of less than 60%.
Section 4.13 Transactions with Affiliates.
----------------------------
Effect any transaction with any Affiliate that is (a) outside the ordinary
course of business or (b) on a basis less favorable than would at the time be
obtainable for a comparable transaction in arms-length dealing with an unrelated
third party, except that this Section 4.13 shall not apply to (i) the Guaranties
of the Borrower and the Guarantors pursuant to Article 9, (ii) any transaction
between the Borrower and a Guarantor and (iii) any renewal or amendment of any
agreement with any Affiliate existing on the Agreement Date, which renewals or
amendments are not, individually or in the aggregate, adverse to the interests
of the Banks; provided that any such renewal or amendment is in writing and
--------
delivered to the Administrative Agent within 30 days of its execution and
delivery.
Section 4.14 Subordinated Indebtedness.
-------------------------
Amend, modify or waive any provision of any Subordinated Indebtedness,
or make any Prepayment of all or any portion of any Subordinated Indebtedness or
make any other payments on or in respect thereof, except that this Section 4.14
shall not apply to (a) amendments, modifications and waivers of Subordinated
Indebtedness that do not have an adverse effect on the rights of the
Administrative Agent, the Issuing Bank, the Swing Line Lender or any Bank under
the Loan Documents, so long as such amendment, modification or waiver is in
writing and a copy thereof is provided to the Administrative Agent within 30
days of its execution, (b) payments of interest and principal when due on the
Subordinated Indebtedness in accordance with their regularly scheduled
maturities (without giving effect to any acceleration or required or optional
Prepayment), but not earlier, and then only if (i) no Default exists and (ii)
with respect to Subordinated Indebtedness, such payment is permitted by the
applicable Subordination Agreement, (c) if the Leverage Ratio for any
Determination Year, commencing with the Determination Year ending December 31,
1999, shall be greater than or equal to 4.00:1.00 but less than 5.00:1.00,
Prepayments of Subordinated Indebtedness for the fiscal year of the Borrower
next succeeding such Determination Year in aggregate amount, together with the
aggregate amount of all Restricted Payments made during such year to which
Section 4.08 shall not be applicable by virtue of clause (b) thereof ("Permitted
---------
Restricted Payments"), not exceeding 25% of Consolidated Excess
- -------------------
31
<PAGE>
Cash Flow for such Determination Year, provided that the Leverage Ratio
--------
immediately before and after the making of such Prepayment shall be less than
5.00 to 1.00 and provided, further, that no Default or Event of Default shall
-------- -------
exist immediately before or after the making of such Prepayment and (d) if the
Leverage Ratio for any Determination Year, commencing with the Determination
Year ending December 31, 1999, shall be less than 4.00:1.00, any Prepayments of
Subordinated Indebtedness made during the fiscal year of the Borrower next
succeeding such Determination Year, provided that the Leverage Ratio immediately
--------
before and after the making of such Prepayment shall be less than 4.00 to 1.00
and provided, further, that no Default or Event of Default shall exist
-------- -------
immediately before or after the making of such Prepayment.
For purposes of clause (a) of the preceding sentence, an increase in the
principal amount of, an increase in the interest rate beyond a commercially
reasonable rate on, or date scheduled earlier than the Term B Termination Date
for the payment, purchase or defeasement of principal of or interest on
Subordinated Indebtedness or the Subordinated Notes shall be deemed to have such
an adverse effect.
C. The Borrower shall not permit any Consolidated Subsidiary to:
------------------------------------------------------------
Section 4.15 Issuance of Capital Securities.
------------------------------
Issue any of its Capital Securities except that this Section 4.15 shall not
apply to any issuance by a Consolidated Subsidiary of any of its Capital
Securities so long as the Capital Securities so issued to any Person other than
the Borrower or another Consolidated Subsidiary shall be no greater than such
Person's share of all Capital Securities of such Consolidated Subsidiary issued
at such time, if issued to the holders of such Consolidated Subsidiary's Capital
Securities pro rata on the basis of the relative amounts of such Capital
Securities held by such holders immediately prior to the issuance of such
Capital Securities, provided, except with respect to the Capital Securities of a
--------
Non-Material Subsidiary, that any such Capital Securities issued to the Borrower
or a Consolidated Subsidiary shall constitute Collateral and the Borrower or
such Consolidated Subsidiary, as the case may be, shall grant to the Secured
Party a fully perfected security interest, not subject to any prior Lien, in all
of the Capital Securities owned by such Person of any such Subsidiary, as
security for the Secured Obligations, provided that if such Subsidiary is not a
--------
United States Person, such security interest shall be granted in no more than
65% of the outstanding Capital Securities of such Subsidiary; without limiting
the generality of the foregoing, such requirement shall include (i) delivery to
the Secured Party of executed stock pledge agreements in form and substance
satisfactory to the Secured Party in respect of such Capital Securities, (ii)
the delivery to the Secured Party of the stock certificates (if any) evidencing
such Capital Securities, together with any appropriate stock powers duly
executed in blank, (iii) the delivery to the Administrative Agent of an opinion
of counsel to Borrower and relevant Subsidiaries as to such matters as the
Administrative Agent may reasonably request, (iv) the delivery to the
Administrative Agent of charter documents and authorizing resolutions of the
Borrower and the relevant Subsidiaries and (v) the taking of such other action
by the Borrower and any Subsidiaries (including, without limitation, the
obtaining of any required consents) as the Administrative Agent may reasonably
request in connection with the grant to Secured Party of an effective and fully
perfected security interest, not subject to any prior Lien, in such Capital
Securities and (vi) such certificates, resolutions, legal opinions, copies of
filings and notices, and other materials as the Administrative Agent may
reasonably request; and provided, further, that if a Default shall exist, the
-------- -------
Administrative Agent may, in its sole and absolute discretion, require that the
Capital
32
<PAGE>
Securities of any Subsidiary constitute Collateral and the Person acquiring such
Capital Securities comply with the requirements of the immediately preceding
proviso.
Section 4.16 Limitation on Restrictive Covenants.
-----------------------------------
Permit to exist, at any time, any consensual restriction limiting the
ability (whether by covenant, event of default, subordination or otherwise) of
any Consolidated Subsidiary to (a) pay dividends or make any other distributions
on shares of its capital stock or other ownership interests held by the Borrower
or any other Consolidated Subsidiary, (b) pay any obligation owed to the
Borrower or any Consolidated Subsidiary, (c) make any loans or advances to or
investments in the Borrower or any Consolidated Subsidiary, (d) transfer any of
its property or assets to the Borrower or any Consolidated Subsidiary or (e)
create any Lien upon its property or assets whether now owned or hereafter
acquired or upon any income or profits therefrom, except that this Section 4.16
shall not apply to Permitted Restrictive Covenants.
D. The Borrower shall not at any time:
----------------------------------
Section 4.17 Leverage Ratio.
--------------
Permit the Leverage Ratio of the Borrower to be greater than the following
amounts at any time during the following respective periods:
<TABLE>
<CAPTION>
Period Ratio
- -------------------------------------------------------------- --------------------------
<S> <C>
Agreement Date through September 29, 1998 6.25:1.00
September 30, 1998 through December 30, 1998 6.00:1.00
December 31, 1998 through December 30, 1999 5.50:1.00
December 31, 1999 through December 30, 2000 5.25:1.00
December 31, 2000 and thereafter 4.50:1.00
</TABLE>
Section 4.18 Senior Leverage Ratio.
---------------------
Permit the Senior Leverage Ratio of the Borrower to be greater than the
following amounts at any time during the following respective periods:
<TABLE>
<CAPTION>
Period Ratio
- -------------------------------------------------------------- --------------------------
<S> <C>
Agreement Date through December 30, 1998 5.25:1.00
December 31, 1998 through December 30, 1999 4.50:1.00
December 31, 1999 through December 30, 2000 4.00:1.00
December 31, 2000 and thereafter 3.50:1.00
</TABLE>
Section 4.19 Ratio of Consolidated EBITDA to Consolidated Interest
-----------------------------------------------------
Expense.
Permit the ratio of Consolidated EBITDA to Consolidated Interest Expense
for the four consecutive fiscal quarters of the Borrower most recently completed
to be less than 2.00:1.00 as at the end of any fiscal quarter of the Borrower.
Section 4.20 Fixed Charge Coverage.
---------------------
Permit the ratio of Consolidated EBITDA to Consolidated Fixed Charges for
the four consecutive fiscal quarters of the Borrower most recently completed to
be less than 1.10:1.00 as at the end of any fiscal quarter of the Borrower.
Section 4.21 [License and Services Agreement].
--------------------------------
Amend or modify, or waive any provision of, the [License and Services
Agreement], except for amendments and waivers that are
33
<PAGE>
not, individually or in the aggregate, materially adverse to the interests of
the Banks; provided that such amendments and waivers are in writing and copies
--------
thereof have been provided to the Administrative Agent within 30 days of their
execution and delivery.
E. The Borrower shall:
------------------
Section 4.22 Interest Rate Protection Agreements. [TO COME]
-----------------------------------
ARTICLE 5
---------
INFORMATION
-----------
Section 5.01 Information to Be Furnished.
---------------------------
From the Agreement Date and until the Repayment Date, the Borrower shall
furnish to each Bank and the Issuing Bank:
(a) Quarterly Financial Statements.
------------------------------
As soon as available and in any event within 45 days after the close
of each of the first three quarterly accounting periods in each fiscal year of
the Borrower, commencing with the quarterly period ending June 30, 1998,
consolidated and consolidating balance sheets of the Borrower and the
Consolidated Subsidiaries as at the end of such quarterly period and the related
consolidated and consolidating statements of income, retained earnings and cash
flows of the Borrower and the Consolidated Subsidiaries for such quarterly
period and for the elapsed portion of the fiscal year ended with the last day of
such quarterly period, setting forth in each case in comparative form the
figures for the corresponding periods of the previous fiscal year. The
consolidated financial statements of the Borrower will be supported by schedules
showing revenues and EBITDA by major business units.
(b) Year-End Financial Statements; Accountants' Certificate.
-------------------------------------------------------
As soon as available and in any event within 90 days after the end of
each fiscal year of the Borrower, commencing with the fiscal year ending
December 31, 1998:
(i) consolidated and consolidating balance sheets of the Borrower and
the Consolidated Subsidiaries as at the end of such fiscal year and the related
consolidated and consolidating statements of income, retained earnings and cash
flows of the Borrower and the Consolidated Subsidiaries for such fiscal year,
setting forth in comparative form (A) the figures as at the end of and for the
previous fiscal year and (B) the figures for the fourth quarterly period during
such fiscal year and the corresponding quarterly period during the previous
fiscal year, supported by schedules showing revenues, operating expenses,
EBITDA, net assets, capital spending and depreciation, by major business units;
and
(ii) an audit report of Price Waterhouse, or other independent
certified public accountants of recognized national standing satisfactory to the
Reviewing Agents, on such of the financial statements referred to in clause (i)
as are consolidated financial statements, which report shall be without a "going
concern" or like qualification or exception, or qualification arising out of the
scope of the audit.
(c) Officer's Certificate as to Financial Statements and Defaults.
-------------------------------------------------------------
At the time that financial statements are furnished pursuant to
Section 5.01(a) or Section 5.01(b), a certificate
34
<PAGE>
of the president, chief financial officer or other officer of the Borrower
acceptable to the Administrative Agent in the form of Schedule 5.01(b).
----------------
(d) Requested Information.
---------------------
From time to time and promptly upon request of the Administrative
Agent, such Information regarding the Loan Documents, the Loans, the Letters of
Credit or the business, assets, Liabilities, financial condition, results of
operations or business prospects of the Borrower and the Consolidated
Subsidiaries as any Reviewing Agent may reasonably request.
(e) Notice of Defaults, Material Adverse Changes and Other Matters.
--------------------------------------------------------------
Prompt notice of:
(i) any Default of which the Borrower is or in the exercise of
normal business prudence should have been aware,
(ii) the acquisition or formation of a new Subsidiary and, in the
case of each such new Subsidiary, its name, jurisdiction of incorporation,
the percentages of the various classes of its Capital Securities owned by
the Borrower or another Subsidiary and whether or not such new Subsidiary
is a Consolidated Subsidiary,
(iii) any change in the name of any Subsidiary, its jurisdiction
of incorporation or formation, the percentages of the various classes of
its Capital Securities or partnership or other ownership interests owned by
the Borrower or another Subsidiary or its status as a Consolidated or non-
Consolidated Subsidiary,
(iv) the written threat or commencement of, or the occurrence of
any change or event relating to, any action, suit or proceeding that would
cause the Representation and Warranty contained in Section 3.06 to be
incorrect if made at such time,
(v) the occurrence of any change or event that would cause the
Representation and Warranty contained in Section 3.08 to be incorrect if
made at such time,
(vi) any event or condition referred to in clauses (i) through
(vii) of Section 6.01(h), whether or not such event or condition shall
constitute an Event of Default, and
(vii) any material amendment of the certificate of incorporation
or partnership agreement or by-laws of the Borrower or any Subsidiary that
is a Loan Party.
Section 5.02 Accuracy of Financial Statements and Information.
------------------------------------------------
(a) Financial Statements.
--------------------
The Borrower hereby represents and warrants that (i) the financial
statements attached hereto as Schedule 5.02(a), while not prepared in accordance
----------------
with Generally Accepted Accounting Principles, would be substantially the same
had such financial statements been so prepared, and fairly present the
respective financial positions of the Persons whose financial statements such
financial statements purport to be as of their respective dates and the results
of operations, retained earnings and, as applicable, changes in financial
position or cash flows of such Persons for the respective periods to which such
statements relate on a combined basis pro forma for the Reorganization, (ii)
except as disclosed or reflected in such financial statements, as
35
<PAGE>
at their respective dates, neither the Borrower nor any Consolidated Subsidiary
had any Liability, contingent or otherwise, or any unrealized or anticipated
loss, that, singly or in the aggregate, has had or could reasonably be expected
to have a Materially Adverse Effect on the Borrower and the Consolidated
Subsidiaries taken as a whole and (iii) the financial statements furnished
pursuant to Section 5.01(a) or Section 5.01(b) will fairly present, in
accordance with Generally Accepted Accounting Principles (except for (x) changes
therein or departures therefrom that are described in the certificate or report
accompanying such statements and that have been approved in writing by the
Borrower's then-current independent certified public accountants and (y)
financial statements for periods prior to January 1, 1998), the consolidated
financial position of the Borrower and the Consolidated Subsidiaries, as at
their respective dates and the consolidated results of operations, retained
earnings and cash flows of such Persons for the respective periods to which such
statements relate.
(b) Other Information.
-----------------
The Borrower hereby represents and warrants that the Information
furnished to the Administrative Agent, the Issuing Bank, the Swing Line Bank or
any Bank by or on behalf of the Borrower, any Pledgor or any Subsidiary on or
prior to the Agreement Date (other than the financial statements referred to in
Section 5.02(a)) does not, and the Information furnished to such Person by or on
behalf of the Borrower, any Pledgor or any Subsidiary after the Agreement Date
(other than the financial statements referred to in Section 5.02(a)) will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading in
the light of the circumstances under which they were made.
Section 5.03 Additional Covenants Relating to Disclosure.
-------------------------------------------
From the Agreement Date and until the Repayment Date, the Borrower shall
and shall cause each Subsidiary to:
(a) Accounting Methods and Financial Records.
----------------------------------------
Maintain a system of accounting, and keep such books, records and
accounts (which shall be true and complete), as may be required or necessary to
permit (i) the preparation of financial statements required to be delivered
pursuant to Section 5.01(a) and Section 5.01(b) and (ii) the determination of
the compliance of the Borrower and the Consolidated Subsidiaries with the terms
of the Loan Documents.
(b) Visits, Inspections and Discussions.
-----------------------------------
Permit representatives of any Bank, from time to time, as often as may
be reasonably requested and upon reasonable notice to a senior officer of the
Borrower, to visit and inspect its properties and its books and records, at
reasonable times, and discuss with any Person its business, assets, Liabilities,
financial condition, results of operation and business prospects.
Section 5.04 Authorization of Third Parties to Deliver Information and
---------------------------------------------------------
Discuss Affairs.
- ---------------
The Borrower and each Guarantor hereby authorizes and directs, and the
Borrower agrees to cause each Consolidated Subsidiary that is not a Guarantor to
authorize and direct, each Person whose preparation or delivery to the
Administrative Agent, the Issuing Bank, the Swing Line Bank or any Bank of any
opinion, report or other Information is a condition or covenant under the Loan
Documents (including under Article 2 or this Article 5) to so prepare or deliver
such Information for the benefit of the Administrative Agent, the Issuing Bank,
the Swing Line Bank or such Bank.
36
<PAGE>
ARTICLE 6
---------
DEFAULT
-------
Section 6.01 Events of Default.
-----------------
Each of the following shall constitute an Event of Default, whatever the
reason for such event and whether it shall be voluntary or involuntary, or
within or without the control of the Borrower or any Consolidated Subsidiary, or
be effected by operation of law or pursuant to any judgment or order of any
court or any order, rule or regulation of any governmental or nongovernmental
body:
(a) any payment of (i) principal of or interest on any of the Loans or
the Notes, (ii) any fee payable pursuant to Section 1.15 or any fee payable to
the Administrative Agent or any of its Affiliates or (iii) the amount to be
reimbursed to the Issuing Bank pursuant to Section 1.09 with respect to any
Drawing or any interest thereon, shall not be made when and as due (whether at
maturity, by reason of notice of prepayment or acceleration or otherwise) and in
accordance with the terms of this Agreement and the Notes, and, except in the
case of payments of principal, such failure shall continue for three Business
Days from the earlier of (1) the date that the Borrower or a Consolidated
Subsidiary knew or in the exercise of normal business prudence should have known
of and (2) the date that the Borrower or a Consolidated Subsidiary was given
notice of, such non-payment;
(b) any Loan Document Representation and Warranty shall at any time
prove to have been incorrect or misleading in any material respect when made;
(c) (i) the Borrower shall default in the performance or observance
of:
(A) any term, covenant, condition or agreement contained in
Section 4.01(a) (insofar as such Section requires the preservation of the
corporate existence of the Borrower), 4.01(e), 4.03, 4.04, 4.08 through
4.10, 4.12, 4.13, 5.01(e)(i) or 5.03(b);
(B) any term, covenant, condition or agreement contained in
Section 4.05, 4.06, 4.07, 4.11, 4.14 or 4.16 through 4.18 and, if capable
of being remedied, such default shall continue unremedied for a period of
10 days; or
(C) any term, covenant, condition or agreement contained in this
Agreement (other than a term, covenant, condition or agreement a default in
the performance or observance of which is elsewhere in this Section
specifically dealt with) and, if capable of being remedied, such default
shall continue unremedied for a period of 30 days from the earlier of (1)
the date that the Borrower or a Consolidated Subsidiary knew or in the
exercise of normal business prudence should have known of and (2) the date
that the Borrower or a Consolidated Subsidiary was given notice of, such
default; or
(ii) any Loan Party shall default in the performance or observance of
any term, covenant, condition or agreement contained in (A) any Subordination
Agreement to which such Loan Party is a party or (B) any Pledge Agreement to
which such Loan Party is a party;
37
<PAGE>
(d) (i) the Borrower, any Consolidated Subsidiary or, subject to the
proviso to this Section 6.01(d), any Affiliate, shall fail to pay, in accordance
with its terms and when due and payable, any of the principal of or interest on
any of its Indebtedness (other than the Loans and the Drawings) having a then
outstanding principal amount in excess of $10,000,000, (ii) the maturity of any
such Indebtedness shall, in whole or in part, have been accelerated, or any such
Indebtedness shall, in whole or in part, have been required to be prepaid prior
to the stated maturity thereof, in accordance with the provisions of any
Contract evidencing, providing for the creation of or concerning such
Indebtedness or (iii) (A) any event shall have occurred and be continuing that
permits (or, with the passage of time or the giving of notice or both, would
permit) any holder or holders of such Indebtedness, any trustee or agent acting
on behalf of such holder or holders or any other Person so to accelerate such
maturity or require any such prepayment and (B) if the Contract evidencing,
providing for the creation of or concerning such Indebtedness provides for a
cure period for such event, such event shall not be cured prior to the end of
such cure period; provided that this Section 6.01(d) shall not apply to any
--------
Indebtedness of an Affiliate unless such Affiliate has granted to the Person to
whom such Indebtedness is owed a Lien on Affiliate Indebtedness;
(e) a default shall exist under any Contract (other than a Contract
relating to Indebtedness to which clause (d) of this Section 6.01 is applicable)
binding upon any Loan Party or any Subsidiary of any Loan Party, except a
default that, together with all other such defaults, has not had and will not
have a Materially Adverse Effect on (i) the Borrower and its Consolidated
Subsidiaries taken as a whole, (ii) any Loan Document or (iii) the Collateral;
(f) (i) the Borrower or any Consolidated Subsidiary shall (A)
commence a voluntary case under the Federal bankruptcy laws (as now or hereafter
in effect), (B) file a petition seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding
up or composition or adjustment of debts, (C) consent to or fail to contest in a
timely and appropriate manner any petition filed against it in an involuntary
case under such bankruptcy laws or other laws, (D) apply for, or consent to, or
fail to contest in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee, liquidator or the like
of itself or of a substantial part of its assets, domestic or foreign, (E) admit
in writing its inability to pay, or generally not be paying, its debts (other
than those that are the subject of bona fide disputes) as they become due, (F)
make a general assignment for the benefit of creditors or (G) take any corporate
or partnership action, as the case may be, for the purpose of effecting any of
the foregoing;
(ii) (A) a case or other proceeding shall be commenced against the
Borrower or any Consolidated Subsidiary seeking (1) relief under the federal
bankruptcy laws of the United States of America (as now or hereafter in effect)
or under any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or composition or adjustment of debts or
(2) the appointment of a trustee, receiver, custodian, liquidator or the like of
the Borrower or any Consolidated Subsidiary, or of all or any substantial part
of the assets, domestic or foreign, of the Borrower or any Consolidated
Subsidiary, and such case or proceeding shall continue undismissed and unstayed
for a period of 60 days or (B) an order granting the relief requested in such
case or proceeding against the Borrower or any Consolidated Subsidiary
(including an order for relief under such federal bankruptcy laws of the United
States of America) shall be entered;
38
<PAGE>
(g) a judgment or order shall be entered against the Borrower or any
Consolidated Subsidiary by any court and (i) in the case of a judgment or order
for the payment of money, either (A) such judgment or order shall continue
undischarged and unstayed for a period of 30 days in which the aggregate amount
(determined in accordance with the proviso to this Section 6.01(g)) of all such
judgments and orders exceeds $50,000,000 or (B) enforcement proceedings shall
have been commenced upon such judgment or order and (ii) in the case of any
judgment or order for other than the payment of money, such judgment or order
could, together with all other such judgments or orders, reasonably be expected
to have a Materially Adverse Effect on the Borrower and the Consolidated
Subsidiaries taken as a whole; provided that clause (i) of this Section 6.01(g)
--------
shall not apply to (x) any judgment or order for the payment of money in an
amount less than $5,000,000 that, in the reasonable determination of the
Borrower, is payable under a policy of insurance issued by a financially
responsible insurer to the Borrower or such Consolidated Subsidiary, as the
case may be, insuring against the claim that was the basis for such judgment or
order and (y) any judgment or order for the payment of money in an amount equal
to or greater than $5,000,000 that a financially responsible insurer has
acknowledged is payable under a policy of insurance issued by it to the Borrower
or such Consolidated Subsidiary, as the case may be, insuring against the claim
that was the basis for such judgment or order;
(h) (i) any Termination Event shall occur with respect to any Benefit
Plan of the Borrower, any Consolidated Subsidiary or any of their respective
ERISA Affiliates, (ii) any Accumulated Funding Deficiency, whether or not
waived, shall exist with respect to any such Benefit Plan, (iii) any Person
shall engage in any Prohibited Transaction involving any such Benefit Plan, (iv)
the Borrower, any Consolidated Subsidiary or any of their respective ERISA
Affiliates shall be in "default" (as defined in ERISA Section 4219(c)(5)) with
respect to payments owing to any such Benefit Plan that is a Multiemployer
Benefit Plan as a result of such Person's complete or partial withdrawal (as
described in ERISA Section 4203 or 4205) therefrom, (v) the Borrower, any
Consolidated Subsidiary or any of their respective ERISA Affiliates shall fail
to pay when due an amount that is payable by it to the PBGC or to any such
Benefit Plan under Title IV of ERISA, (vi) a proceeding shall be instituted by a
fiduciary of any such Benefit Plan against the Borrower, any Consolidated
Subsidiary or any of their respective ERISA Affiliates to enforce ERISA Section
515 and such proceeding shall not have been dismissed within 30 days thereafter,
or (vii) any other event or condition shall occur or exist with respect to any
such Benefit Plan, except that no event or condition referred to in clauses (i)
through (vii) shall constitute an Event of Default if it, together with all
other such events or conditions at the time existing, has not subjected, and in
the reasonable determination of the Administrative Agent will not subject, the
Borrower or any Consolidated Subsidiary to any Liability that, alone or in the
aggregate with all such Liabilities for all such Persons, exceeds $5,000,000;
(i) (a) any Loan Party, any payee of any Subordinated Indebtedness or
any Affiliate of any Loan Party or any such payee asserts, or any Person
institutes, any proceeding that could reasonably be expected to establish that
(x) any provision of the Loan Documents is invalid, not binding or unenforceable
or (y) the Guaranty of the Borrower or any Consolidated Subsidiary is limited in
amount other than pursuant to Section 9.02 hereof;
39
<PAGE>
(b) any Pledge Agreement, Subordination Agreement or any guaranty
under Article 9 shall, without the prior written consent of the Banks, cease to
be in full force and effect; or
(j) if at any time (a) SOFTBANK Corp. shall for any reason cease,
directly or indirectly, to have and exercise voting power for the election of at
least a majority of the board of directors of the Borrower or to direct the
management of the business and operations of the Borrower, or (b) any "person"
or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act")) other than SOFTBANK
------------
Corp. becomes the ultimate "beneficial owner" (as such term is used in Rule 13d-
3 promulgated pursuant to the Exchange Act), directly or indirectly, of more
than 50% of the aggregate voting power of the voting stock of the Borrower on a
fully diluted basis.
Section 6.02 Remedies upon Event of Default.
------------------------------
During the continuance of any Event of Default (other than one specified in
Section 6.01(f)) and in every such event, the Administrative Agent, upon notice
to the Borrower, may do any or all of the following: (a) declare, in whole or,
from time to time, in part, the principal of and interest on the Loans, the
Notes and the Drawings and all other amounts owing under the Borrower Loan
Documents to be, and the Loans, the Notes and the Drawings and all such other
amounts shall thereupon and to that extent become, due and payable, (b)
terminate, in whole or, from time to time, in part, the Commitments and (c)
demand that the Borrower deliver cash collateral to the Administrative Agent in
an amount equal to the aggregate amount of Contingent Reimbursement Obligations
then outstanding to be held in accordance with Section 10.19 and thereupon such
amount will become so due and payable to the Administrative Agent. Upon the
occurrence of an Event of Default specified in Section 6.01(f), automatically
and without any notice to the Borrower, (a) the principal of and interest on the
Loans, the Notes and the Drawings and all other amounts owing under the Borrower
Loan Documents shall be due and payable, (b) the Commitments shall terminate and
(c) an amount equal to the aggregate amount of Contingent Reimbursement
Obligations then outstanding shall be due and payable to the Administrative
Agent to be held in accordance with Section 10.19. Presentment, demand, protest
or notice of any kind (other than the notice provided for in the first sentence
of this Section 6.02) are hereby expressly waived.
ARTICLE 7
---------
ADDITIONAL CREDIT FACILITY PROVISIONS
-------------------------------------
Section 7.01 Mandatory Suspension and Conversion of Eurodollar Rate Loans.
------------------------------------------------------------
Each Banks' obligations to make, continue or convert into, Eurodollar Rate
Loans of any Type shall be suspended, all outstanding Loans of that Type shall
be converted on the last day of their applicable Interest Periods (or, if
earlier, in the case of clause (b) below, on the last day the Bank may lawfully
continue to maintain Loans of that Type or, in the case of clause (c) below, on
the day determined by such Bank to be the last Business Day before the effective
date of the applicable restriction) into, and all pending requests for the
making or continuation of or conversion into Loans of such Type shall be deemed
requests for, Base Rate Loans and, in the case of clause (b)(ii) below, the
Issuing Bank's obligation to issue Letters of Credit shall be suspended, if:
40
<PAGE>
(a) on or prior to the determination of an interest rate for a
Eurodollar Rate Loan of that Type for any Interest Period, the Administrative
Agent determines that for any reason appropriate quotations are not available to
it (including, in the case of the Eurodollar Rate, quotations in the London
interbank market for deposits with it) for purposes of determining the
Eurodollar Rate for such Interest Period;
(b) on or prior to the first day of any Interest Period for a
Eurodollar Rate Loan of that Type, such Bank determines that the Adjusted
Eurodollar Rate as determined by the Administrative Agent for such Interest
Period would not accurately reflect the cost to such Bank of making, continuing
or converting into a Eurodollar Rate Loan of such Type for such Interest Period;
(c) at any time such Bank determines that any Regulatory Change
Enacted after the Agreement Date (i) makes it unlawful or impracticable for the
Bank or the applicable Lending Office to make, continue or convert into any
Eurodollar Rate Loan of that Type, or to comply with its obligations hereunder
in respect thereof, or (ii) in the determination of the Issuing Bank, makes it
unlawful or impracticable for the Issuing Bank to issue any Letters of Credit or
to comply with its obligations hereunder in respect thereof;
(d) such Bank determines that, by reason of any Regulatory Change
Enacted after the Agreement Date, the Bank or the applicable Lending Office is
restricted, directly or indirectly, in the amount that it may hold of (i) a
category of liabilities that includes deposits by reference to which, or on the
basis of which, the interest rate applicable to Eurodollar Rate Loans of that
Type is directly or indirectly determined or (ii) the category of assets that
includes Eurodollar Rate Loans of that Type.
If, as a result of this Section 7.01, any Loan of any Bank that would
otherwise be made or maintained as or converted into a Eurodollar Rate Loan of
any Type for any Interest Period is instead made or maintained as or converted
into a Base Rate Loan, then, unless the corresponding Loan of each of the other
Banks is also to be made or maintained as or converted into a Base Rate Loan,
such Loan shall be treated as being a Eurodollar Rate Loan of such Type for such
Interest Period for all purposes of this Agreement (including the timing,
application and proration among the Banks of interest payments, conversions and
prepayments) except for the calculation of the interest rate borne by such Loan.
The Administrative Agent shall promptly notify the Borrower and each Bank of the
existence or occurrence of any condition or circumstance specified in clause (a)
above, and each Bank shall promptly notify the Borrower and the Administrative
Agent of the existence or occurrence of any condition or circumstance specified
in clause (b), (c) or (d) above applicable to such Bank's Loans, but the failure
by the Administrative Agent or such Bank to give any such notice shall not
affect such Bank's rights hereunder.
Section 7.02 Regulatory Changes.
------------------
If (a) any Regulatory Change shall directly or indirectly (i)(A) in the
determination of any Bank, reduce the amount of any sum received or receivable
by such Bank with respect to any Loan, LC Participation or Swing Loan
Participation or the return to be earned by such Bank on any Loan, LC
Participation or Swing Loan Participation or (B) in the determination of the
Issuing Bank, reduce the amount of any sum received or receivable by the Issuing
Bank with respect to any Letter of Credit, Drawing or
41
<PAGE>
Contingent Reimbursement Obligation, or the return to be earned by the Issuing
Bank on any Letter of Credit, Drawing or Contingent Reimbursement Obligation,
(ii)(A) in the determination of any Bank, impose a cost on such Bank or any
Affiliate of such Bank that is attributable to the making or maintaining of, or
such Bank's commitment to make or acquire, any Loan or LC Participation or to
purchase any Swing Loan Participation, or (B) in the determination of the
Issuing Bank, impose a cost on the Issuing Bank or any of its Affiliates that is
attributable to the issuance or maintenance of, or the commitment to issue, any
Letter of Credit or the making or maintaining of any Drawing or Contingent
Reimbursement Obligation, (iii)(A) in the determination of any Bank, require
such Bank or any Affiliate to make any payment on or calculated by reference to
the gross amount of any amount received by such Bank under any Loan Document or
(B) in the determination of the Issuing Bank, require the Issuing Bank or any of
its Affiliates to make any payment on or calculated by reference to the gross
amount of any amount received by the Issuing Bank or any of its Affiliates in
respect of (1) any Letter of Credit or its commitment to issue any Letter of
Credit or (2) any Drawing or Contingent Reimbursement Obligation or (iv)(A) in
the determination of any Bank, reduce, or have the effect of reducing, the rate
of return on the capital of such Bank or any Affiliate of such Bank allocable to
any Loan, LC Participation, Swing Loan Participation or such Bank's commitment
to make any Loan, acquire any LC Participation or purchase any Swing Loan
Participation or (B) in the determination of the Issuing Bank, reduce, or have
the effect of reducing, the rate of return on the capital of the Issuing Bank or
any of its Affiliates allocable to (1) any Letter of Credit or its commitment to
issue any Letter of Credit or (2) any Drawing or Contingent Reimbursement
Obligation and (b) such reduction, increased cost or payment shall not be fully
compensated for by an adjustment in the applicable rates of interest payable
under the Loan Documents, then the Borrower shall pay to such Bank or the
Issuing Bank, as the case may be, such additional amounts as such Bank or the
Issuing Bank, as the case may be, determines will, together with any adjustment
in the applicable rates of interest payable hereunder, fully compensate for such
reduction, increased cost or payment. Such additional amounts shall be payable,
in the case of those applicable to prior periods, within 15 days after request
by such Bank or the Issuing Bank, as the case may be, for such payment and, in
the case of those applicable to future periods, on the dates specified, or
determined in accordance with a method specified, by such Bank or the Issuing
Bank, as the case may be. Each Bank and the Issuing Bank will promptly notify
the Borrower of any determination made by such Bank or the Issuing Bank, as the
case may be, referred to in clauses (a) and (b) above, but the failure to give
such notice shall not affect the right of such Bank or the Issuing Bank, as the
case may be, to compensation.
Section 7.03 Capital Requirements.
--------------------
If, (a) in the determination of any Bank, such Bank or any of its
Affiliates is required to maintain capital on account of any Loan, LC
Participation or Swing Loan Participation or such Bank's commitment to make any
Loan, acquire any LC Participation or purchase any Swing Loan Participation in a
greater amount than such Bank or such Affiliate would otherwise have been so
required to maintain on account thereof, or (b) in the determination of the
Issuing Bank, the Issuing Bank or any of its Affiliates is required to maintain
capital on account of (i) any Letter of Credit or its commitment to issue any
Letter of Credit or (ii) any Drawing or Contingent Reimbursement Obligation in a
greater amount than the Issuing Bank or such Affiliate otherwise would have been
so required to maintain on account thereof, then, upon request by such Bank or
the Issuing Bank, as the case may be, the Borrower shall from time to time
thereafter pay to such Bank or the Issuing Bank, as the case may be, such
42
<PAGE>
additional amounts as such Bank or the Issuing Bank, as the case may be,
determines will fully compensate it for any reduction in the rate of return on
the additional capital that such Bank, or the Issuing Bank, or such Affiliate of
either thereof, as the case may be, is so required to maintain. Such additional
amounts shall be payable, in the case of those applicable to prior periods,
within 15 days after request by such Bank or the Issuing Bank, as the case may
be, for such payment and, in the case of those relating to future periods, on
the dates specified, or determined in accordance with a method specified, by
such Bank or the Issuing Bank, as the case may be.
Section 7.04 Funding Losses.
--------------
The Borrower shall pay to each Bank, upon request, such amount or amounts
as such Bank determines are necessary to compensate it for any loss, cost or
expense incurred by it as a result of (a) in the case of Eurodollar Rate Loans,
(i) any payment (including a payment pursuant to Section 1.14(c)), prepayment
or conversion of a Eurodollar Rate Loan on a date other than the last day of an
Interest Period for such Eurodollar Rate Loan or (ii) a Eurodollar Rate Loan for
any reason not being made or converted, or any payment of principal thereof or
interest thereon not being made, on the date therefor determined in accordance
with the applicable provisions of this Agreement, and (b) in the case of Agreed
Rate Loans, (i) any payment or prepayment of an Agreed Rate Loan on a date other
than the last day of an Agreed Rate Interest Period or (ii) an Agreed Rate Loan
for any reason not being made, or any payment of principal thereof or interest
thereon not being made, on the date required therefor determined in accordance
with the applicable provisions of this Agreement, including any loss incurred in
obtaining, liquidating or employing deposits from third parties, but excluding
loss of margin for the period after any such payment or conversion or failure to
borrow, convert, continue or prepay.
Section 7.05 Certain Determinations.
----------------------
In making the determinations contemplated by Sections 7.01, 7.02, 7.03 and
7.04, each Bank may make such estimates, assumptions, allocations and the like
that such Bank in good faith reasonably determines to be appropriate, and each
Bank's selection thereof in accordance with this Section 7.05, and the
determinations made by such Bank on the basis thereof, shall be final, binding
and conclusive upon the Borrower, except, for manifest errors. Each Bank shall
furnish to the Borrower upon request a certificate outlining in reasonable
detail the computation of any amounts claimed by it under Sections 7.02, 7.03
and 7.04 and the assumptions underlying such computations.
Section 7.06 Change of Lending Office.
------------------------
If an event occurs with respect to a Lending Office that obligates the
Borrower to pay any amount under Section 1.20, makes operable the provisions of
clause (b) or (c) of Section 7.01 or entitles any Bank to make a claim under
Section 1.20(a), 7.02 or 7.03, such Bank shall, if requested by the Borrower,
use reasonable efforts to designate another Lending Office or Offices the
designation of which will reduce the amount the Borrower is so obligated to pay,
eliminate such operability or reduce the amount such Bank is so entitled to
claim, provided that such designation would not, in the sole and absolute
discretion of such Bank, be disadvantageous to such Bank in any manner or
contrary to Bank policy. Each Bank may at any time and from time to time change
any Lending Office and shall give notice of any such change to the Borrower.
Except in the case of a change in Lending Offices made at the request of the
Borrower, the designation of a new Lending Office by any Bank shall not obligate
the Borrower to pay any amount to such Bank under Section 1.20, make operable
the provisions of clause (b) or (c) of Section 7.01 or entitle the Bank to make
a claim under Section 1.20(a),
43
<PAGE>
7.02 or 7.03 if such obligation, the operability of such clause or such claim
results solely from such designation and not from a Regulatory Change Enacted
thereafter.
ARTICLE 8
---------
THE ADMINISTRATIVE AGENT
------------------------
Section 8.01 Appointment and Powers.
----------------------
Each Bank, the Swing Line Bank and the Issuing Bank hereby irrevocably
appoints and authorizes the Administrative Agent, and the Administrative Agent
hereby agrees, to act as the agent for and representative (within the meaning of
Section 9-105(m) of the Uniform Commercial Code) of such Bank and the Issuing
Bank under the Loan Documents with such powers as are delegated to the
Administrative Agent and the Secured Party by the terms thereof, together with
such other powers as are reasonably incidental thereto. The Administrative
Agent's duties shall be purely ministerial and it shall have no duties or
responsibilities except those expressly set forth in the Loan Documents. The
Administrative Agent shall not be required under any circumstances to take any
action that, in its judgment, (a) is contrary to any provision of the Loan
Documents or Applicable Law or (b) would expose it to any Liability or expense
against which it has not been indemnified to its satisfaction. The
Administrative Agent shall not, by reason of its serving as the Administrative
Agent, be a trustee or other fiduciary for any Bank or the Issuing Bank.
Section 8.02 Limitation on Administrative Agent's Liability.
----------------------------------------------
Neither the Administrative Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them under or in connection with the Loan
Documents, except for its or their own gross negligence, willful misconduct or
knowing violations of law. The Administrative Agent shall not be responsible to
any Bank or the Issuing Bank for (a) any recitals, statements, representations
or warranties contained in the Loan Documents or in any certificate or other
document referred to or provided for in, or received by any of the Banks under,
the Loan Documents, (b) the validity, effectiveness or enforceability of the
Loan Documents or any such certificate or other document, (c) the value or
sufficiency of the Collateral, or (d) any failure by the Loan Parties to perform
any of their obligations under the Loan Documents. The Administrative Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact so long as the
Administrative Agent was not grossly negligent in selecting or directing such
agents or attorneys-in-fact. The Administrative Agent shall be entitled to rely
upon any certification, notice or other communication (including any thereof by
telephone, telex, telecopier, telegram or cable) believed by it to be genuine
and correct and to have been signed or given by or on behalf of the proper
Person or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Administrative Agent. As to any
matters not expressly provided for by the Loan Documents, the Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under the Loan Documents in accordance with instructions signed by the
Required Banks, and such instructions of the Required Banks and any action taken
or failure to act pursuant thereto shall be binding on all of the Banks.
Section 8.03 Defaults.
--------
The Administrative Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment to it of principal of or
interest on Loans or fees) unless the Administrative Agent has received notice
from a Bank, or
44
<PAGE>
the Borrower specifying such Default and stating that such notice is a "Notice
of Default". In the event that the Administrative Agent has knowledge of such a
non-payment or receives such a notice of the occurrence of a Default, the
Administrative Agent shall give prompt notice thereof to the Banks and the
Issuing Bank. In the event of any Default, the Administrative Agent shall (a) in
the case of a Default that constitutes an Event of Default, take any or all of
the actions referred to in clauses (a), (b) and (c) of the first sentence of
Section 6.02 if so directed by the Required Banks and (b) in the case of any
Default, take such other action with respect to such Default as shall be
reasonably directed by the Required Banks. Unless and until the Administrative
Agent shall have received such directions, in the event of any Default, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interests of the Banks and the Issuing Bank.
Section 8.04 Rights as a Bank.
----------------
Each Person acting as the Administrative Agent that is also a Bank shall,
in its capacity as a Bank, have the same rights and powers under the Loan
Documents as any other Bank and may exercise the same as though it were not
acting as the Administrative Agent, and the term "Bank" or "Banks" shall include
such Person in its individual capacity. Each Person acting as the
Administrative Agent (whether or not such Person is a Bank) and its Affiliates
may (without having to account therefor to any Bank) accept deposits from, lend
money to and generally engage in any kind of banking, trust or other business
with the Loan Parties and their Affiliates as if it were not acting as the
Administrative Agent, and such Person and its Affiliates may accept fees and
other consideration from the Loan Parties and their Affiliates for services in
connection with the Loan Documents or otherwise without having to account for
the same to the Banks.
Section 8.05 Indemnification.
---------------
The Banks agree to indemnify the Administrative Agent (to the extent not
reimbursed by the Loan Parties under the Loan Documents), ratably on the basis
of the respective aggregate principal amounts of the Exposures of the Banks and
the Term A Loans and Term B Loans outstanding made by the Banks (or, if no
Exposures, Term A Loans or Term B Loans are at the time outstanding, ratably on
the basis of their respective Commitments), for any and all Liabilities, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Administrative Agent (including the costs and expenses that
the Loan Parties are obligated to pay under the Loan Documents) in any way
relating to or arising out of the Loan Documents or any other documents
contemplated thereby or referred to therein or the transactions contemplated
thereby or the enforcement of any of the terms thereof or of any such other
documents, provided that no Bank shall be liable for any of the foregoing to the
extent (a) they are subject to the indemnity contemplated by the last sentence
of Section 10.10(b) or (b) they arise from gross negligence, willful misconduct
or knowing violations of law by the Administrative Agent.
Section 8.06 Non-Reliance on Administrative Agent and Other Banks.
----------------------------------------------------
Each Bank and the Issuing Bank agrees that it has made and will continue to
make, independently and without reliance on the Administrative Agent or any
other Bank, and based on such documents and information as it deems appropriate,
its own credit analysis of the Loan Parties, its own evaluation of the
Collateral and its own decision to enter into the Loan Documents and to take or
refrain from taking any action in connection therewith. The Administrative
Agent shall not be
45
<PAGE>
required to keep itself informed as to the performance or observance by the Loan
Parties of the Loan Documents or any other document referred to or provided for
therein or to inspect the properties or books of any Loan Party or any
Subsidiary thereof or the Collateral. Except for notices, reports and other
documents and information expressly required to be furnished to the Banks and
the Issuing Bank by the Administrative Agent under the Loan Documents, the
Administrative Agent shall have no obligation to provide any Bank or the Issuing
Bank with any information concerning the business, status or condition of any
Loan Party or any Subsidiary thereof or the Loan Documents or the Collateral
that may come into the possession of the Administrative Agent or any of its
Affiliates.
Section 8.07 Execution and Amendment of Loan Documents on Behalf of the
----------------------------------------------------------
Banks.
- -----
Each Bank hereby authorizes the Administrative Agent to execute and deliver, in
the name of and on behalf of such Bank, (a) any Pledge Agreement, (b) all UCC
financing and continuation statements and other documents the filing or
recordation of which are, in the determination of the Administrative Agent,
necessary or appropriate to create, perfect or maintain the existence or
perfected status of the Security Interest and (c) any other Loan Document
requiring execution by or on behalf of such Bank other than, in the case of the
Issuing Bank, Letters of Credit and Applications. The Administrative Agent
shall consent to any amendment of any term, covenant, agreement or condition of
the Pledge Agreement, or to any waiver of any right thereunder, if, but only if,
the Administrative Agent is directed to do so in writing by the Required Banks;
provided that (a) the Administrative Agent shall not be required to consent to
- --------
any such amendment or waiver that affects its rights or duties and (b) the
Administrative Agent shall not, unless directed to do so in writing by each
Bank, (i) consent to any assignment by any Loan Party of any of its rights or
obligations under any such agreement or (ii) release any Collateral from the
Security Interest, except as required or contemplated by the Loan Documents.
Section 8.08 Resignation of the Administrative Agent.
---------------------------------------
The Administrative Agent may at any time give notice of its resignation to
the Banks, the Issuing Bank and the Borrower. Upon receipt of any such notice
of resignation, the Required Banks and the Issuing Bank may, after consultation
with the Borrower, appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Required Banks and the
Issuing Bank and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Banks and the Issuing Bank
and after consultation with the Borrower, appoint a successor Administrative
Agent. Upon the acceptance by any Person of its appointment as a successor
Administrative Agent, such Person shall thereupon succeed to and become vested
with all the rights, powers, privileges, duties and obligations of the retiring
Administrative Agent and the retiring Administrative Agent shall be discharged
from its duties and obligations as Administrative Agent under the Loan Documents
and (b) the retiring Administrative Agent shall promptly transfer all Collateral
within its possession or control to the possession or control of the successor
Administrative Agent and shall execute and deliver such notices, instructions
and assignments as may be necessary or desirable to transfer the rights of the
Administrative Agent with respect to the Collateral to the successor
Administrative Agent. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Article 8 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent.
46
<PAGE>
ARTICLE 9
---------
GUARANTEES
----------
Section 9.01 Guaranty of Payment.
-------------------
The Borrower and each of the Guarantors hereby (a) guarantees to each Bank,
the Issuing Bank, the Swing Line Bank and each holder of a Note the due and
punctual payment of all of the Guaranteed Obligations (other than those that
constitute Liabilities of such Guarantor) in accordance with their respective
terms and when and as due (whether at maturity, by reason of acceleration or
otherwise), or deemed to be due pursuant to Section 9.03, and (b) agrees so to
pay the same when so due, or deemed to be due, upon demand.
Section 9.02 Limitation on Guaranty.
----------------------
It is the intention of the Borrower, each of the Guarantors, the Banks, the
Issuing Bank and the Swing Line Bank that the obligations of the Borrower and
each such Guarantor under Section 9.01 shall be in, but not in excess of, the
maximum amount permitted by Applicable Law. To that end, but only to the extent
such obligations would otherwise be void, voidable or otherwise unenforceable,
the obligations of the Borrower and each such Guarantor hereunder shall be
limited to the maximum amount that would not make such obligations void,
voidable or otherwise unenforceable. This Section 9.02 is intended solely to
preserve the rights of each Bank, the Issuing Bank, the Swing Line Bank and each
holder of a Note hereunder to the maximum extent permitted by Applicable Law,
and neither the Borrower, any Guarantor nor any other Person shall have any
right under this Section 9.02 that it would not otherwise have under Applicable
Law.
Section 9.03 Continuance and Acceleration of Guaranteed Obligations upon
-----------------------------------------------------------
Certain Events.
- --------------
If:
(a) any Event of Default that this Agreement states is to result in
the automatic acceleration of any Guaranteed Obligations shall occur;
(b) any injunction, stay or the like that enjoins any acceleration, or
demand for the payment of any Guaranteed Obligations that would otherwise
be required or permitted hereunder shall become effective; or
(c) any Guaranteed Obligations shall be or be determined to be or
become discharged, disallowed, invalid, illegal, void or otherwise
unenforceable (whether by operation of any present or future law or by
order of any court or governmental agency) against the Borrower;
then (i) such Guaranteed Obligations shall, for all purposes hereof, be deemed
(A) in the case of clause (c), to continue to be outstanding and in full force
and effect notwithstanding the unenforceability thereof against the Borrower and
(B) if such is not already the case, to have thereupon become immediately due
and payable and, if subject thereto, to have commenced bearing interest at the
Post-Default Rate and (ii) such Bank, the Issuing Bank, the Swing Line Bank or
other holder of a Note to which such Guaranteed Obligations are owing may, with
respect to such Guaranteed Obligations, exercise all of the rights and remedies
under the Borrower Loan Documents that would be available to them during an
Event of Default.
47
<PAGE>
Section 9.04 Recovered Payments.
------------------
The Guaranteed Obligations shall be deemed not to have been paid, and the
Borrower's and each Guarantor's obligations hereunder in respect thereof shall
continue and not be discharged, to the extent that any payment thereof by the
Borrower or any other guarantor, or out of the proceeds of any collateral, is
recovered from or paid over by or for the account of any Bank, the Issuing Bank,
the Swing Line Bank or other holder of a Note for any reason, including as a
preference or fraudulent transfer or by virtue of any subordination (whether
present or future or contractual or otherwise) of the Guaranteed Obligations,
whether such recovery or payment over is effected by any judgment, decree or
order of any court or governmental agency, by any plan of reorganization or by
settlement or compromise by such Bank, the Issuing Bank, the Swing Line Bank or
other holder of a Note (whether or not consented to by the Borrower, any
Guarantor or any other guarantor) of any claim for any such recovery or payment
over. The Borrower and each Guarantor hereby expressly waives the benefit of
any applicable statute of limitations and agrees that it shall be liable
hereunder with respect to any Guaranteed Obligation whenever such a recovery or
payment over thereof occurs.
Section 9.05 Evidence of Guaranteed Obligations.
----------------------------------
The records of the Administrative Agent, the Issuing Bank, the Swing Line
Bank and each Bank and other holder of a Note shall be conclusive evidence of
the Guaranteed Obligations owing to it and of all payments in respect thereof.
Section 9.06 Binding Nature of Certain Adjudications.
---------------------------------------
The Borrower and each Guarantor shall be conclusively bound by the
adjudication in any action or proceeding, legal or otherwise, involving any
controversy arising under, in connection with, or in any way related to, any of
the Guaranteed Obligations, and by a judgment, award or decree entered therein.
Section 9.07 Nature of Guarantor's Obligations.
---------------------------------
The Borrower's and each Guarantor's obligations hereunder (a) are absolute
and unconditional, (b) are unlimited in amount except as provided in Section
9.02, (c) constitute a guaranty of payment and not a guaranty of collection, (d)
are as primary obligor and not as a surety only, (e) shall be a continuing
guaranty of all present and future Guaranteed Obligations and all promissory
notes and other documentation given in extension or renewal or substitution for
any of the Guaranteed Obligations and (f) shall be irrevocable.
Section 9.08 No Release of Guarantor.
-----------------------
THE OBLIGATIONS OF THE BORROWER AND EACH GUARANTOR UNDER THIS ARTICLE 9
SHALL NOT BE REDUCED, LIMITED OR TERMINATED, NOR SHALL THE BORROWER OR SUCH
GUARANTOR BE DISCHARGED FROM ANY THEREOF, FOR ANY REASON WHATSOEVER (other than,
subject to Section 9.04, the payment of the Guaranteed Obligations), INCLUDING
(and whether or not the same shall have occurred or failed to occur once or more
than once and whether or not the Borrower or such Guarantor shall have received
notice thereof) ANY ACT OR FAILURE TO ACT OR ANY OTHER EVENT OR CIRCUMSTANCE
THAT (i) VARIES THE RISK OF THE BORROWER OR SUCH GUARANTOR HEREUNDER OR (ii) BUT
FOR THE PROVISIONS HEREOF, WOULD, AS A MATTER OF STATUTE OR RULE OF LAW OR
EQUITY, OPERATE TO REDUCE, LIMIT OR TERMINATE THE OBLIGATIONS OF THE BORROWER OR
SUCH GUARANTOR HEREUNDER OR DISCHARGE THE BORROWER OR SUCH GUARANTOR FROM ANY
THEREOF.
48
<PAGE>
Section 9.09 Certain Waivers.
---------------
THE BORROWER AND EACH GUARANTOR WAIVES ALL DEFENSES UNDER APPLICABLE LAW
THAT WOULD, BUT FOR THIS SECTION 9.09, BE AVAILABLE TO THE BORROWER OR SUCH
GUARANTOR AS A DEFENSE AGAINST OR A REDUCTION OR LIMITATION OF ITS OBLIGATIONS
HEREUNDER.
ARTICLE 10
----------
MISCELLANEOUS
-------------
Section 10.01 Notices and Deliveries.
----------------------
(a) Manner of Delivery.
------------------
All notices, communications and materials (including all Information)
to be given or delivered pursuant to the Borrower Loan Documents shall, except
in those cases where giving notice by telephone is expressly permitted, be given
or delivered in writing (which shall include telecopy transmissions). Notices
under Sections 1.02, 1.03(c), 1.05, 1.09(b), 1.14 and 6.02 may be by telephone,
promptly, in the case of each notice other than one under Section 6.02,
confirmed in writing. In the event of a discrepancy between any telephonic
notice and any written confirmation thereof, such written confirmation shall be
deemed the effective notice except to the extent that the Administrative Agent,
the Issuing Bank or the Swing Line Bank has acted in reliance on such telephonic
notice.
(b) Addresses.
---------
All notices, communications and materials to be given or delivered
pursuant to the Borrower Loan Documents shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
(i) if to the Borrower, to it at:
Ziff-Davis Inc.
One Park Avenue
New York, NY 10016
Telecopier No.: (212) 503-3585
Telephone No.: (212) 503-3762
Attention: Thomas L. Wright
and Malcolm Harris
49
<PAGE>
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Telecopier No.: (212) 558-3588
Telephone No.: (212) 558-4000
Attention: David M. Huggin
(ii) if to the Administrative Agent, to it at:
The Bank of New York
One Wall Street
New York, NY 10286
Telecopier No.: (212) 635-8593/8595
Telephone No.: (212) 635-8628
Attention: Mr. Brendan T. Nedzi
with a copy of each notice of borrowing under Section 1.02(a)
or under Section 1.02(b) to:
[Carolyn Surles]
BNY Capital Markets, Inc.
One Wall Street, 18th Floor
New York, New York 10286
Telecopier No.: (212) [635-6365]
Telephone No.: (212) [635-4695]
(iii) if to any Guarantor, to it at the address for notices listed
on Schedule 10.01 or such Guarantor's Guarantor Supplement;
--------------
(iv) if to any Bank, to it at the address or telex, telecopier or
telephone number and to the attention of the individual or
department, set forth below such Bank's name under the
heading "Notice Address" on Annex A or, in the case of a
-------
Bank that becomes a Bank pursuant to an assignment, set forth
under the heading "Notice Address" in the Notice of
Assignment given to the Borrower, the Administrative Agent
and the Issuing Bank with respect to such assignment;
(v) if to the Swing Line Bank or the Issuing Bank, if the Swing
Line Bank or the Issuing Bank, as the case may be, is at such
time (A) the Bank that is the Administrative Agent, to it at
the address of the Administrative Agent or (b) any other
Bank, to it at the address of such Bank;
50
<PAGE>
or at such other address or telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice specifically
captioned "Notice of Change of Address," given to (v) if the party to which such
information pertains is the Borrower, the Administrative Agent, the Issuing
Bank, the Swing Line Bank and each Bank, (w) if the party to which such
information pertains is the Administrative Agent, the Borrower, the Swing Line
Bank, the Issuing Bank and each Bank, (x) if the party to which such information
pertains is a Bank, the Borrower, the Swing Line Bank, the Issuing Bank and the
Administrative Agent, (y) if the party to which such information pertains is the
Swing Line Lender, the Borrower, the Administrative Agent, the Issuing Bank and
each Bank and (z) if the party to which such information pertains is the Issuing
Bank, the Borrower, the Administrative Agent, the Swing Line Bank and each Bank.
(c) Effectiveness.
-------------
Each notice and communication and any material to be given or
delivered pursuant to the Borrower Loan Documents shall be deemed so given or
delivered (i) if sent by registered or certified mail, postage prepaid, return
receipt requested, on the third Business Day after such notice, communication or
material, addressed as above provided, is delivered to a United States post
office and a receipt therefor is issued thereby, (ii) if sent by any other means
of physical delivery, when such notice, communication or material is delivered
to the appropriate address as above provided, (iii) if sent by telecopier, when
such notice, communication or material is transmitted to the appropriate
telecopier number as above provided and is received at such number and (iv) if
given by telephone, when communicated to the individual or any member of the
department specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered, or, in the case of
notice by the Administrative Agent to the Borrower under Section 6.02 given by
telephone as above provided, if any individual or any member of the department
to whose attention notices, communications and materials are to be given or
delivered is unavailable at the time, to any other officer or employee of the
Borrower, except that (x) notices of a change of address, telecopier or
telephone number or individual or department to whose attention notices,
communications and materials are to be given or delivered shall not be deemed
given until received, (y) notices, communications and materials to be given or
delivered to the Administrative Agent or any Bank pursuant to Sections 1.02,
1.03(c), 1.05, 1.14 and 1.19(b) shall not be deemed given or delivered until
received by the officer of the Administrative Agent or such Bank responsible, at
the time, for the administration of the Loan Documents and (z) notices,
communications and materials to be given or delivered to the Issuing Bank
pursuant to Sections 1.07(d) and 1.08(a) shall not be deemed given or delivered
until received by the officer of the Issuing Bank responsible, at the time, for
the administration of the Issuing Bank's commitment hereunder to issue Letters
of Credit and, in the case of a notice pursuant to Section 1.07(d), such notice
is specifically captioned "Notice of Limitation Under Applicable Law".
(d) Reasonable Notice.
-----------------
Any requirement under Applicable Law of reasonable notice by the
Administrative Agent, the Issuing Bank, the Swing Line Bank or the Banks to the
Borrower or a Guarantor of any event in connection with, or in any way related
to, the Loan Documents or the exercise by the Administrative Agent, the Issuing
Bank, the Swing Line Bank or the Banks of any of their rights thereunder shall
be met if notice of such event is given to the Borrower or such Guarantor in the
manner prescribed above at least 10 days before (i) the date of such event or
(ii) the date after which such event will occur.
51
<PAGE>
(e) Collateral.
----------
Until the Administrative Agent shall otherwise specify, all Collateral
to be delivered to the Administrative Agent pursuant to the Borrower Loan
Documents consisting of instruments, securities, chattel paper, letters of
credit or documents shall be delivered to the Administrative Agent at the
Administrative Agent's Office either by hand delivery or by registered or
certified mail, postage prepaid, return receipt requested, in either case
insured in an amount not less than the greater of the aggregate face amount and
the aggregate fair market value of the Collateral so being delivered. All other
Collateral to be delivered to the Administrative Agent pursuant to the Borrower
Loan Documents shall be delivered to such Person, at such address, by such means
and in such manner as the Administrative Agent may designate.
Section 10.02 Expenses; Indemnification.
-------------------------
Whether or not any Credit Extensions are made hereunder, the Borrower
shall:
(a) pay or reimburse the Administrative Agent, the Issuing Bank, the
Swing Line Bank and each Bank for all transfer, documentary, stamp and similar
taxes, and all recording and filing fees and taxes, payable in connection with,
arising out of, or in any way related to, the execution, delivery and
performance of the Loan Documents or the making of the Loans;
(b) pay or reimburse the Administrative Agent, the Issuing Bank and
the Swing Line Bank for all costs and reasonable expenses (including reasonable
fees and disbursements of legal counsel), incurred by the Administrative Agent,
the Issuing Bank or the Swing Line Bank, as the case may be, in connection with,
arising out of, or in any way related to (i) the negotiation, preparation,
execution and delivery of (A) the Loan Documents and (B) whether or not
executed, any waiver, amendment or consent thereunder or thereto requested or
consented to by the Borrower, (ii) consulting with respect to any matter in any
way arising out of, related to or connected with, the Loan Documents, including
the performance of any of their obligations under or related to the Loan
Documents or the protection or preservation of the Collateral or (iii)
protecting, preserving, exercising or enforcing any of the rights of the
Administrative Agent or the Banks in, under or related to the Collateral or the
Loan Documents, including defending the Security Interest as a valid, perfected
security interest, not subject to any prior Lien, in the Collateral subject only
to Permitted Liens;
(c) pay or reimburse each Bank for all costs and expenses (including
fees and disbursements of legal counsel and other experts employed or retained
by such Bank) incurred by such Bank, in connection with, arising out of, or in
any way related to (i) consulting during a Default with respect to (A) the
protection, preservation, exercise or enforcement of any of its rights in, under
or related to the Collateral or the Loan Documents or (B) the performance of any
of its obligations under or related to the Loan Documents or (ii) protecting,
preserving, exercising or enforcing during a Default any of its rights in, under
or related to the Collateral or the Loan Documents; and
(d) indemnify and hold each Indemnified Person harmless from and
against all losses (including judgments, penalties and fines) suffered, and pay
or reimburse each Indemnified Person for all costs and expenses (including fees
and disbursements of legal counsel and other experts employed or retained by
such Indemnified Person) incurred, by such Indemnified Person in connection
with, arising out of, or in any way related to (i) any Loan
52
<PAGE>
Document Related Claim (whether asserted by such Indemnified Person, the
Borrower, a Guarantor or any other Person), including the prosecution or defense
thereof and any litigation or proceeding with respect thereto (whether or not,
in the case of any such litigation or proceeding, such Indemnified Person is a
party thereto) or (ii) any investigation, governmental or otherwise, arising out
of, related to, or in any way connected with, the Loan Documents or the
relationships established thereunder, except that the foregoing indemnity shall
not be applicable to any loss suffered by any Indemnified Person to the extent
such loss is determined by a judgment of a court that is binding on the Borrower
and such Indemnified Person, final and not subject to review on appeal, to be
the result of acts or omissions on the part of such Indemnified Person
constituting (x) willful misconduct or (y) knowing violations of law.
Section 10.03 Amounts Payable Due upon Request for Payment.
--------------------------------------------
All amounts payable by the Borrower under Section 10.02 and under the other
provisions of the Borrower Loan Documents shall, except as otherwise expressly
provided, be immediately due upon request for the payment thereof.
Section 10.04 Remedies of the Essence.
-----------------------
The various rights and remedies of the Administrative Agent, the Issuing
Bank, the Swing Line Bank and each of the Banks under the Borrower Loan
Documents are of the essence of those agreements, and the Administrative Agent,
the Issuing Bank, the Swing Line Bank and each of the Banks shall be entitled to
obtain a decree requiring specific performance of each such right and remedy.
Section 10.05 Rights Cumulative.
-----------------
Each of the rights and remedies of the Administrative Agent, the Issuing
Bank, the Swing Line Bank and the Banks under the Loan Documents shall be in
addition to all of its other rights and remedies under the Loan Documents and
Applicable Law, and nothing in the Loan Documents shall be construed as limiting
any such rights or remedies.
Section 10.06 Confidentiality.
---------------
The Administrative Agent, the Issuing Bank, the Swing Line Bank and the
Banks shall maintain the confidentiality of non-public information regarding the
Borrower, the Guarantors and their Affiliates received pursuant to this
Agreement and shall use such information only for the purposes of analyzing the
financial condition of the Borrower and the Guarantors and their compliance with
the terms and conditions of the Loan Documents; provided that nothing herein
--------
shall prevent the Administrative Agent, the Issuing Bank, the Swing Line Bank or
the Banks from disclosing such information (i) to its officers, directors,
employees, attorneys and accountants who have a need to know such information in
accordance with customary banking practices and who receive such information
having been made aware of the restrictions set forth in this Section 10.06, (ii)
upon the order or other process of any court or administrative agency or
regulatory authority of competent jurisdiction, (iii) pursuant to any
requirement of Applicable Law, (iv) protecting, exercising or enforcing any of
its rights under the Loan Documents or (v) in the case of an assignment
permitted under Section 10.10, to any potential assignee so long as such Person
shall have been made aware of and shall have agreed to abide by the restrictions
set forth in this Section 10.06.
Section 10.07 Amendments; Waivers.
-------------------
Any term, covenant, agreement or condition of the Loan Documents may be
amended, and any right under the Loan Documents may be waived, if, but only if,
such amendment or waiver is in writing and is signed by (a) in the case of an
amendment or waiver with respect to the documents referred to in Section 8.07,
the
53
<PAGE>
Administrative Agent, (b) in the case of an amendment or waiver with respect
to any Loan Document, the Required Banks and, if the rights and duties of the
Administrative Agent, the Issuing Bank or the Swing Line Bank are affected
thereby, by the Administrative Agent, the Issuing Bank or the Swing Line Bank,
as the case may be, and (c) in the case of an amendment, by the Borrower;
provided that no amendment or waiver shall be effective, unless in writing and
- --------
signed by each Bank affected thereby, to the extent it (A) increases the amount
of such Bank's Commitments, (B) reduces the principal of or the rate of interest
on such Bank's Loans or Notes or any of the Drawings or the fees payable to such
Bank hereunder, (C) postpones any date fixed for (1) any payment of principal of
or interest on such Bank's Loans or Notes, any of the Drawings or the fees
payable to such Bank hereunder or (2) the expiration of any Letter of Credit if
such postponement would extend the expiration date of such Letter of Credit
beyond the RC Termination Date, (D) releases any Guarantor from its Guaranty of
the Guaranteed Obligations, (E) release any Collateral from the Security
Interest, unless such release is specifically provided for or contemplated in
the Loan Documents, (F) amends Section 1.21, this Section 10.07, the final
sentence of Section 1.02(a)(ii), the definition of "Required Banks" or any other
provision of this Agreement requiring the consent or other action of all of the
Banks; and provided, further, that no amendment or waiver of any Section
-------- -------
permitted to be amended or waived by Required Banks, which amendment or waiver
would have an effect on the rights or interests of any Lender Group under the
Loan Documents that is (x) adverse to such Lender Group and (y) disproportionate
in such effect to the effect that such amendment or waiver would have on the
rights or interests of any other Lender Group under the Loan Documents, shall be
effective, unless in writing and signed by Banks comprising 51% or more of such
first Lender Group, based on the Commitments or, if such Commitments shall have
expired or been terminated, based on the Term A Loans or Term B Loans, as the
case may be, outstanding (in the case of the Term A Banks or the Term B Banks)
or the Exposures outstanding (in the case of the RC Banks), of such Lender
Group. Unless otherwise specified in such waiver, a waiver of any right under
the Loan Documents shall be effective only in the specific instance and for the
specific purpose for which given. No election not to exercise, failure to
exercise or delay in exercising any right, nor any course of dealing or
performance, shall operate as a waiver of any right of the Administrative Agent,
the Issuing Bank, the Swing Line Bank or any Bank under the Loan Documents or
Applicable Law, nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right of such Person under the Loan Documents or Applicable Law.
Section 10.08 Set-Off; Suspension of Payment and Performance.
----------------------------------------------
The Administrative Agent, the Issuing Bank, the Swing Line Bank and each
Bank is hereby authorized by the Borrower and each Guarantor, at any time and
from time to time, without notice, (a) during any Event of Default, to set off
against, and to appropriate and apply to the payment of, the Liabilities of such
Person under the Loan Documents (whether owing to the Administrative Agent, the
Issuing Bank, the Swing Line Bank or such Bank or to any other Person that is
the Administrative Agent, the Issuing Bank, the Swing Line Bank or a Bank and
whether matured or unmatured, fixed or contingent or liquidated or unliquidated)
any and all Liabilities owing by the Administrative Agent, the Issuing Bank, the
Swing Line Bank or such Bank or any of its Affiliates to such Person (whether
payable in Dollars or any other currency, whether matured or unmatured and, in
the case of Liabilities that are deposits, whether general or special, time or
demand and however evidenced and whether maintained at a branch or office
located within or without the United States of America) and (b) during any
Default, to suspend the payment and
54
<PAGE>
performance of such Liabilities owing by such Person or its Affiliates in an
amount of the Loans and Drawings plus interest accrued thereon and other amounts
then due and payable under the Loan Documents and, in the case of Liabilities
that are deposits, to the extent necessary, to return as unpaid for insufficient
funds any and all checks and other items drawn against such deposits.
Section 10.09 Sharing of Recoveries.
---------------------
(a) Each Bank agrees that, if, for any reason, including as a result
of (i) the exercise of any right of counterclaim, set-off, banker's lien or
similar right, (ii) its claim in any applicable bankruptcy, insolvency or other
similar law being deemed secured by a Debt owed by it to any Loan Party,
including a claim deemed secured under Section 506 of the Bankruptcy Code or
(iii) the allocation of payments by the Administrative Agent or any Loan Party
in a manner contrary to the provisions of Section 1.21, such Bank shall receive
payment of a proportion of the aggregate amount due and payable to it hereunder
(A) as principal of or interest on the Loans or with respect to any LC
Participation or any Swing Loan Participation or (B) fees that is greater than
the proportion received by any other Bank in respect of the respective
aggregates of such amounts due and payable to such other Bank hereunder, then
the Bank receiving such proportionately greater payment shall purchase
participations (which it shall be deemed to have done simultaneously upon the
receipt of such payment) in the rights of the other Banks hereunder in such
Loans or fees, as the case may be, so that all such recoveries with respect to
such respective amounts due and payable hereunder (net of costs of collection)
shall be pro rata; provided that if all or part of such proportionately greater
--------
payment received by the purchasing Bank is thereafter recovered by or on behalf
of any Loan Party from such Bank, such purchases shall be rescinded and the
purchase prices paid for such participations shall be returned to such Bank to
the extent of such recovery, but without interest (unless the purchasing Bank is
required to pay interest on the amount recovered to the Person recovering such
amount, in which case the selling Bank shall be required to pay interest at a
like rate). The Borrower expressly consents to the foregoing arrangements and
agrees that any holder of a participation in any rights hereunder so purchased
or acquired pursuant to this Section 10.09(a) shall, with respect to such
participation, be entitled to all of the rights of a Bank as fully as though it
were a Bank under Sections 1.20, 7.02 through 7.06, 10.02 and 10.08 (subject to
any condition imposed on a Bank hereunder with respect thereto) and may exercise
any and all rights of set-off with respect to such participation as fully as
though the Borrower were directly indebted to the holder of such participation
for Loans in the amount of such participation.
(b) Each Bank agrees to exercise any right of counterclaim, set-off,
banker's lien or similar right that it may have in respect of any Loan Party in
a manner so as to apportion the amount subject to such exercise, on a pro rata
basis, first, between (i) obligations of such Loan Party for amounts subject to
the sharing provisions of Section 10.09(a) and (ii) other Liabilities of such
Loan Party and, second, with respect to amounts allocated to obligations of such
Loan Party referred to in clause (i), between, first, to Loans and second, Swing
Loan Participations.
Section 10.10 Assignments and Participations.
------------------------------
(a) Assignments.
-----------
(i) Neither the Borrower nor any other Loan Party may assign any of
its rights or obligations under the Loan Documents to which it is a party
without the prior written consent of (A) in the case of the documents referred
to in Section 8.07, the Administrative Agent and (B) in the case of any of the
other Loan Documents, each Bank, and no assignment of any such obligation shall
release the Borrower or such other Loan Party therefrom unless the
Administrative Agent or each Bank, as
55
<PAGE>
applicable, shall have consented to such release in a writing specifically
referring to the obligation from which the Borrower or such other Loan Party is
to be released.
(ii) Each Bank may from time to time assign any or all of its rights
and obligations under any Loan Documents to one or more Persons; provided that,
--------
except in the case of the grant of a security interest to a Federal Reserve Bank
(which may be made without condition or restriction), no such assignment shall
be effective unless (A) the assignment is consented to by the Administrative
Agent, the Issuing Bank, the Swing Line Bank and the Borrower (which consent
shall not be unreasonably withheld or delayed), and provided, further, that the
-------- -------
consent of the Borrower shall not be required (x) in the case of any assignment
to an Affiliate of such Bank or another Bank and (y) during an Event of Default,
(B) the assignment shall involve, in the case of a partial assignment, the
assignment of not less than $5,000,000 of the assignor Bank's Loans and
Commitments so assigned, (C) a Notice of Assignment with respect to the
assignment, duly executed by the assignor and the assignee, shall have been
given to the Borrower, the Issuing Bank, the Swing Line Bank and the
Administrative Agent, (D) in the case of an assignment of a Registered Note,
such Registered Note shall have been surrendered for registration of assignment
duly endorsed by (or accompanied by a written instrument of assignment duly
executed by) the Registered Holder and such assignment shall have been recorded
on the Register and (E) except in the case of an assignment by the Bank that is
the Administrative Agent, the Administrative Agent shall have been paid an
assignment fee of $3,500. Upon any effective assignment, the assignee shall
have all of the rights and shall be obligated to perform all of the obligations
of a Bank; provided that no assignee shall be entitled to any amounts that would
--------
otherwise be payable to it with respect to its assignment under Section 1.20 or
Section 7.02 unless (x) such amounts are payable in respect of a Regulatory
Change Enacted after the date the applicable assignment agreement was executed
or (y) such amounts would have been payable to the Bank that made such
assignment if such assignment had not been made. In the event of any effective
assignment by a Bank, the Borrower shall, against (except in the case of a
partial assignment) receipt of the existing Notes of the assignor Bank, issue
new Notes to the assignee Bank.
(b) Participation.
-------------
Each Bank may from time to time sell or otherwise grant participations
in any or all of its rights and obligations under the Borrower Loan Documents
without the consent of the Borrower, any Guarantor, the Issuing Bank, the Swing
Line Bank or any other Bank; provided that no such grant of a participation
--------
shall be effective unless consented to by the Administrative Agent (which
consent shall not be unreasonably withheld or delayed). In the event of any
such grant by a Bank of a participation, such Bank's obligations under the Loan
Documents to the other parties thereto shall remain unchanged, such Bank shall
remain solely responsible for the performance thereof, and the Borrower, the
Guarantors, the Administrative Agent, the Issuing Bank, the Swing Line Bank and
the other Banks may continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations thereunder. A Bank may not
grant to any holder of a participation the right to require such Bank to take or
omit to take any action under the Loan Documents, except that a Bank may grant
to any such holder the right to require such holder's consent to (i) reduce the
principal of or the rate of interest on such Bank's Loans or any of the Drawings
or the fees payable to such Bank hereunder, (ii) postpone any date fixed for
(A) any payment of principal of or interest on such Bank's Loans, any of the
Drawings or the fees payable to such Bank hereunder or (B) the expiration of any
Letter of Credit if such postponement would extend the expiration date of such
56
<PAGE>
Letter of Credit beyond the RC Termination Date, (iii) permit any Loan Party
to assign any of its obligations under the Loan Documents to any other Person,
(iv) release any Guarantor from its obligations under Article 9 or (v) release
any Collateral from the Security Interest except as required or contemplated by
the Loan Documents. Each holder of a participation in any rights under the
Borrower Loan Documents, if and to the extent the applicable participation
agreement so provides, shall, with respect to such participation, be entitled to
all of the rights of a Bank as fully as though it were a Bank under Sections
1.20, 7.02 through 7.06, 10.02 and 10.08 (subject to any conditions imposed on a
Bank hereunder with respect thereto, including delivery of the forms and
certificates required under Section 1.20(c)) and may exercise any and all rights
of set-off with respect to such participation as fully as though the Borrower
were directly indebted to the holder of such participation for Loans in the
amount of such participation; provided that no holder of a participation shall
--------
be entitled to any amounts that would otherwise be payable to it with respect to
its participation under Section 1.20 or 7.02 unless (x) such amounts are payable
in respect of a Regulatory Change Enacted after the date the applicable
participation agreement was executed or (y) such amounts would have been payable
to the Bank that granted such participation if such participation had not been
granted. Each Bank selling or granting a participation shall indemnify the
Borrower and the Administrative Agent for any Taxes and Liabilities that they
may sustain as a result of such Bank's failure to withhold and pay any Taxes
applicable to payments by such Bank to its participant in respect of such
participation.
Section 10.11 Governing Law.
-------------
The rights and duties of the Borrower, the Guarantors, the Administrative
Agent, the Issuing Bank, the Swing Line Bank and the Banks under this Agreement
and the Notes (including matters relating to the Maximum Permissible Rate)
shall, pursuant to New York General Obligations Law Section 5-1401, be governed
by the law of the State of New York.
Section 10.12 Judicial Proceedings; Waiver of Jury Trial.
------------------------------------------
Any judicial proceeding brought against the Borrower or any Guarantor with
respect to any Loan Document Related Claim may be brought in any court of
competent jurisdiction in the City of New York, and, by execution and delivery
of this Agreement, the Borrower and each Guarantor (a) accepts, generally and
unconditionally, the nonexclusive jurisdiction of such courts and any related
appellate court and irrevocably agrees to be bound by any judgment rendered
thereby in connection with any Loan Document Related Claim and (b) irrevocably
waives any objection it may now or hereafter have as to the venue of any such
proceeding brought in such a court or that such a court is an inconvenient
forum. The Borrower and each Guarantor hereby waives personal service of
process and consents that service of process upon it may be made by certified or
registered mail, return receipt requested, at its address specified or
determined in accordance with the provisions of Section 10.01(b), and service so
made shall be deemed completed on the third Business Day after such service is
deposited in the mail. Nothing herein shall affect the right of the
Administrative Agent, the Issuing Bank, the Swing Line Bank, any Bank or any
other Indemnified Person to serve process in any other manner permitted by law
or shall limit the right of the Administrative Agent, the Issuing Bank, the
Swing Line Bank, any Bank or any other Indemnified Person to bring proceedings
against the Borrower or any Guarantor in the courts of any other jurisdiction.
Any judicial proceeding by the Borrower or any Guarantor against the
Administrative Agent involving any Loan Document Related Claim shall be brought
only in a court located in the City and State of New York and in the case of a
Bank or the Issuing Bank or the Swing Line Bank, the jurisdiction in which the
Bank's principal United States office is
57
<PAGE>
located. THE BORROWER, THE ADMINISTRATIVE AGENT, THE ISSUING BANK, THE SWING
LINE BANK, EACH BANK AND EACH GUARANTOR HEREBY WAIVE TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING TO WHICH ANY OF THEM ARE PARTY INVOLVING ANY LOAN DOCUMENT
RELATED CLAIM.
Section 10.13 LIMITATION OF LIABILITY.
-----------------------
NEITHER THE ADMINISTRATIVE AGENT, THE ISSUING BANK, THE SWING LINE BANK,
NOR ANY OTHER INDEMNIFIED PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND
THE BORROWER AND EACH GUARANTOR HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE
FOR, ANY SPECIAL, INDIRECT OR CONSEQUENTIAL, AND, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, PUNITIVE, DAMAGES SUFFERED BY THE BORROWER OR SUCH GUARANTOR IN
CONNECTION WITH ANY LOAN DOCUMENT RELATED CLAIM.
Section 10.14 Severability of Provisions.
--------------------------
Any provision of the Borrower Loan Documents that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions thereof or affecting the validity or enforceability of such
provision in any other jurisdiction. To the extent permitted by Applicable Law,
the Borrower and each Guarantor hereby waive any provision of Applicable Law
that renders any provision of the Borrower Loan Documents prohibited or
unenforceable in any respect.
Section 10.15 Counterparts.
------------
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto were
upon the same instrument.
Section 10.16 Survival of Obligations.
-----------------------
Except as otherwise expressly provided therein, the rights and obligations
of the Borrower, the Guarantors, the Administrative Agent, the Issuing Bank, the
Swing Line Bank and the other Indemnified Persons under the Borrower Loan
Documents shall survive the Repayment Date and the termination of the Security
Interest; provided that the obligations of the Guarantors under Article 9 shall
--------
be subject to the proviso to the definition of Guaranteed Obligations.
Section 10.17 Entire Agreement.
----------------
This Agreement, the Notes and the other Loan Documents embody the entire
agreement between the Borrower, the Guarantors, the Administrative Agent, the
Issuing Bank, the Swing Line Bank and the Banks relating to the subject matter
hereof and supersede all prior agreements, representations and understandings,
if any, relating to the subject matter hereof.
Section 10.18 Successors and Assigns.
----------------------
All of the provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
Section 10.19 Cash Collateral.
---------------
If, at any time, cash collateralization of Contingent Reimbursement
Obligations shall be required pursuant to any provision of any of the Loan
Documents, such cash collateralization shall be made by deposit of funds in
Dollars, in the required amount, into an interest bearing cash collateral
account at the Administrative Agent's
58
<PAGE>
Office, which account shall be under the dominion and control of the
Administrative Agent and is hereby pledged to the Banks, the Issuing Bank and
the Swing Line Bank as security for the payment of the Contingent Reimbursement
Obligations and any other amounts that may become payable hereunder or under the
other Loan Documents. Funds deposited in such account, and any income thereon,
may be applied by the Administrative Agent against amounts payable under the
Loan Documents as such amounts become due. Any funds remaining in such account
when all Contingent Reimbursement Obligations and other amounts payable under
the Loan Documents shall have been paid shall be returned to the Borrower.
Section 10.20 Registered Notes.
----------------
A Bank that is a Non-US Bank and that has complied with Section
1.20(c)(A)(1)(bb) may, by written request delivered to the Borrower and the
Administrative Agent, have any or all of its Notes issued as Registered Notes,
and for this purpose the Borrower shall cause to be maintained a Register. Once
issued, Registered Notes may not be exchanged for Notes that are not Registered
Notes and the ownership of Registered Notes, and of the Loans evidenced thereby,
may be transferred only in accordance with the provisions of Section
10.10(a)(ii)(E).
Section 10.21 Foreign Currency Conversion.
---------------------------
(a) Each reference in this Agreement to Dollars is of the essence. If in
connection with determining the amount of a judgment to be rendered in a
currency other than Dollars it is necessary to convert a sum payable in Dollars
into such other currency, then, unless another rate of exchange is required
under Applicable Law, the rate of exchange used shall be the Administrative
Agent's spot rate of exchange in New York City on the Business Day immediately
preceding the day on which final judgment is to be rendered. Notwithstanding
the foregoing, to the fullest extent permitted by Applicable Law, the obligation
of the Borrower in respect of any amount due in Dollars under the Loan Documents
shall, notwithstanding any payment in any other currency (whether pursuant to a
judgment or otherwise), be discharged only to the extent of the amount in
Dollars that the Person entitled to receive such payment may, in accordance with
normal banking procedures, purchase with the sum paid in such other currency
(after any premium and costs of exchange) on the Business Day immediately
following the day on which such Person receives such payment. If the amount of
Dollars so purchased on such Business Day in accordance with such procedures is
for any reason less than the sum originally due to such Person in Dollars, the
Borrower agrees, as a separate obligation and notwithstanding any such judgment,
to indemnify such Person against such loss, and if the amount of Dollars so
purchased exceeds the sum of (a) the amount originally due to the relevant
Person in Dollars plus (b) any amounts shared with other Banks as a result of
allocations of such excess as a disproportionate payment to such Person under
Section 10.09, such Person agrees to remit such excess to the Borrower.
(b) If any amount is received or recovered by the Administrative Agent, the
Secured Party or any Bank in respect of the Secured Obligations (whether
pursuant to a judgment or otherwise) in a currency other than Dollars, then the
Administrative Agent, the Secured Party or such Bank, as the case may be, may
convert such other currency into Dollars at the Administrative Agent's spot rate
of exchange in New York City on the Business Day immediately following the day
that such amount is received in such other currency.
(c) For purposes of determining the amount of any Indebtedness,
Investments, Restricted Payments, Guaranties or other amounts under the Loan
Documents in a currency other than
59
<PAGE>
Dollars, such other currency shall be converted on the basis of the
Administrative Agent's spot rate of exchange in New York City on the Business
Day immediately preceding the date of such determination.
ARTICLE 11
----------
INTERPRETATION
--------------
Section 11.01 Defined Terms.
-------------
For the purposes of this Agreement:
"Accumulated Funding Deficiency" has the meaning ascribed to that term in
------------------------------
Section 302(a)(2) of ERISA.
"Additional Commitment Bank" has the meaning ascribed to that term in
--------------------------
Section 1.14(c).
"Adjudicated Letter of Credit Claim" means a final judgment against the
----------------------------------
Issuing Bank in a proceeding in which the Borrower had the risk of persuasion
that (a)(i) documents presented under a Letter of Credit on the basis of which a
Drawing was made did not comply with the terms thereof and (ii) the Issuing
Bank's payment against such documents constituted gross negligence or bad faith
or (b) the Issuing Bank willfully failed to pay under a Letter of Credit after
the presentation to the Issuing Bank by the beneficiary (or a transferee to whom
such Letter of Credit had been transferred in accordance with its terms) of
documents strictly complying with the terms and conditions of such Letter of
Credit; and for this purpose a "final judgment" means a judgment by a court that
is binding on the Issuing Bank, final and not subject to review on appeal.
"Adjusted Eurodollar Rate" means, for any Interest Period, a rate per annum
------------------------
(rounded upward, if necessary, to the next higher 1/16 of 1%) equal to the rate
obtained by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to 1 minus the Reserve Requirement in effect from time to time
during such Interest Period.
"Administrative Agent" means The Bank of New York, as agent for and
--------------------
representative (within the meaning of Section 9-105(m) of the Uniform Commercial
Code) of the Banks and the Issuing Bank under the Loan Documents, and any
successor Administrative Agent appointed pursuant to Section 8.08.
"Administrative Agent's Office" means the address of the Administrative
-----------------------------
Agent specified in or determined in accordance with the provisions of Section
10.01(b).
"Affiliate" means, with respect to a Person, any other Person that,
---------
directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such first Person; unless
otherwise specified, "Affiliate" means an Affiliate of the Borrower. For
purposes of this definition, the term "control" (including the correlative
meanings of the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of such
Person, whether through the ownership of securities or partnership or other
ownership interests or by contract or otherwise.
60
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"Affiliate Indebtedness" means Indebtedness payable by the Borrower to any
----------------------
Person or group of Persons that are Affiliates.
"Affiliate Note" means the [Promissory Note by the Borrower to
--------------
_____________]; provided that such [promissory note] is subject to a
--------
Subordination Agreement.
"Agreed Rate" means, for any day with respect to a Swing Loan, a rate per
-----------
annum equal to the rate agreed to by the Borrower and the Swing Line Bank as the
rate of interest applicable to such Swing Loan.
"Agreed Rate Interest Period" has the meaning ascribed to that term in
---------------------------
Section 1.02(b)(i).
"Agreed Rate Loan" means a Swing Loan the interest on which is, or is to
----------------
be, as the context may require, computed on the basis of the applicable Agreed
Rate.
"Agreement" means this Agreement, including all schedules, annexes and
---------
exhibits hereto.
"Agreement Date" means the date set forth as such on the signature pages
--------------
hereof, which date is the date the executed copies of this Agreement were
delivered by all parties hereto and, accordingly, this Agreement became
effective and the Banks, the Issuing Bank and the Swing Line Bank first became
committed to make the Loans and other extensions of credit contemplated by this
Agreement. If no such date is there set forth, the Agreement Date shall be the
date as of which this Agreement is dated.
"Applicable Law" means, anything in Section 10.11 to the contrary
--------------
notwithstanding, (a) all applicable common law and principles of equity and (b)
all applicable provisions of all (i) constitutions, statutes, rules, regulations
and orders of governmental bodies, (ii) Governmental Approvals and Governmental
Registrations and (iii) orders, decisions, judgments and decrees of all courts
(whether at law or in equity or admiralty) and arbitrators.
"Application" means a request for the issuance or amendment of a Letter of
-----------
Credit in such form as the Issuing Bank shall require.
"Bank" means (a) any Person listed on the signature pages hereof as a Bank
----
and (b) any Person that has been assigned any or all of the rights or
obligations of a Bank pursuant to Section 10.10(a).
"Bank Nonparticipation" means (a) the inability of any Bank to acquire any
---------------------
LC Participation pursuant to Section 1.10(a) or to make any payment required by
it under Section 1.10(b) because of such Bank's having been subject to
receivership, insolvency or other similar laws, (b) the refusal of any Bank to
acquire any LC Participation pursuant to Section 1.10(a) or to make any payment
required by it under Section 1.10(b) or (c) the giving by any Bank to the
Issuing Bank of any notice (which has not been retracted) of its intention not
to so acquire any LC Participation or to make any such required payment.
"Bank Tax" means any net income, franchise or similar Tax imposed upon any
--------
Bank by any jurisdiction (or political subdivision thereof) in which such Bank
or any of its Lending
61
<PAGE>
Offices is located or where such Bank is otherwise subject to tax other than as
a result of the transactions contemplated by this Agreement, but in no event
shall it mean any withholding tax.
"Bankruptcy Default" means a Default which is such by virtue of Section
------------------
6.01(f).
"Base Rate" means, for any day, a rate per annum equal to the higher of (a)
---------
the Prime Rate in effect on such day and (b) the sum of the Federal Funds Rate
in effect on such day plus 0.500%.
"Base Rate Loan" means a Loan the interest on which is, or is to be, as the
--------------
context may require, computed on the basis of the Base Rate.
"Base Rate Margin" means with respect to (a) Base Rate Loans that are Term
----------------
B Loans outstanding at any time, 0.75% and (b) Base Rate Loans that are RC Loans
or Term A Loans (i) outstanding during any period on or before the date three
Business Days after the delivery of the financial statements of the Borrower
pursuant to Section 5.01(a) for the quarterly period ending September 30, 1998,
0.500% and (ii) outstanding during any period thereafter, such percentage as set
forth in the following table opposite the applicable Leverage Ratio for the four
fiscal quarters of the Borrower most recently completed prior to such period:
<TABLE>
<CAPTION>
Applicable Base
Leverage Ratio Rate Margin
- ---------------------------------------------- -----------------------------------------
<S> <C>
greater than or
equal to 5.75 : 1.00 0.500%
less than 5.75 : 1.00 but greater than or equal to 5.50 : 1.00 0.375%
less than 5.50 : 1.00 but greater than or equal to 5.00: 1.00 0.125%
less than 5.00 : 1.00 0.000%
</TABLE>
The Base Rate Margin will be adjusted upon receipt of the Borrower's
quarterly financial statements for each fiscal quarter of the Borrower. Not
later than three Business Days after receipt by the Administrative Agent of the
financial statements required to be delivered pursuant to Section 5.01(a) or (b)
for each fiscal quarter of the Borrower, the Administrative Agent shall
determine the Leverage Ratio for the applicable period and shall promptly notify
the Borrower and the Banks of such determination and of any change in the Base
Rate Margin resulting therefrom; provided that (x) if financial statements are
--------
not delivered on or prior to the date when due, during the period from the date
when due to the date that is three Business Days after such financial statements
are so delivered or (y) if an Event of Default described in Section 6.01(a)
shall at any time exist, the Base Rate Margin shall be 0.500%. Any change in
the Base Rate Margin (other than one pursuant to the proviso to the immediately
-------
preceding sentence) shall be effective as of the date the Administrative Agent
so notifies the Borrower and the Banks with respect to all Loans outstanding on
such date, and such new Base Rate Margin shall continue in effect until the
effective date of the next redetermination in accordance with this Section. Each
determination of the Leverage Ratio and Base Rate Margin by the Administrative
Agent in accordance with this Section shall be conclusive and binding on the
Borrower and the Banks absent manifest error.
62
<PAGE>
"Benefit Plan" of any Person, means, at any time, any employee benefit plan
------------
(including a Multiemployer Benefit Plan), the funding requirements of which
(under Section 302 of ERISA or Section 412 of the Code) are, or at any time
within six years immediately preceding the time in question were, in whole or in
part, the responsibility of such Person. All Benefit Plans of the Borrower in
existence on the Agreement Date are listed on Schedule 4.12.
-------------
"Borrower" means Ziff-Davis Inc., a Delaware corporation.
--------
"Borrower Loan Documents" means the Loan Documents to which the Borrower is
-----------------------
a party.
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which banks in New York City are authorized to close.
"Business Unit" means the assets constituting the business, or a division
-------------
or operating unit thereof, of any Person.
"Capital Security" means, with respect to any Person, (a) any share of
----------------
capital stock or other ownership interest of such Person and (b) any security
convertible into, or any option, warrant or other right to acquire, any share of
capital stock or other ownership interest of such Person.
"Cash Management Arrangements" means any foreign exchange contracts
----------------------------
(whether the same are for future or spot delivery or a hedge transaction),
derivative obligations (including commodities swaps, commodities options, equity
or equity index swaps and the like) and overdrafts and other extensions of
credit under cash management arrangements, checking accounts and the like.
"Code" means the Internal Revenue Code of 1986.
----
"Collateral" means all property in which a Lien is created pursuant to the
----------
Loan Documents.
"Commitment" of any Bank means such Bank's Term A Commitment, Term B
----------
Commitment and RC Commitment.
"Commitment Increase" has the meaning ascribed to that term in Section
-------------------
1.14(c).
"Commitment Increase Supplement" has the meaning ascribed to that term in
------------------------------
Section 1.14(c).
"Consolidated EBITDA" means, for any period, the consolidated EBITDA of the
-------------------
Borrower and the Consolidated Subsidiaries for such period (taken as a
cumulative whole).
"Consolidated Excess Cash Flow" means, for any period, the excess of (a)
-----------------------------
the sum of (i) Consolidated EBITDA for such period (plus the amount of net cash
proceeds received during such period on account of any gain, and minus the
amount of cash paid during such period on account of any loss, excluded from
Consolidated EBITDA under clause (b) of the definition
63
<PAGE>
thereof) and (ii) the aggregate of the decreases, if any, in Non-Cash Working
Capital of the Borrower and the Consolidated Subsidiaries during such period,
over (b) the sum of (i) interest paid or payable in cash by the Borrower and the
Consolidated Subsidiaries during such period other than interest paid to the
Borrower or any Consolidated Subsidiary, (ii) income taxes of the Borrower and
the Consolidated Subsidiaries paid or payable in cash for such period, (iii)
expenditures by the Borrower and the Consolidated Subsidiaries during such
period for fixed assets and capital equipment, determined on a consolidated
basis and net of any credits or reimbursements with respect to such expenditures
received by the Borrower or any Consolidated Subsidiary, (iv) scheduled payments
of principal of Indebtedness made by the Borrower and the Consolidated
Subsidiaries during such period other than payments of Indebtedness owing to the
Borrower or any Consolidated Subsidiary, (v) the aggregate of the increases, if
any, in Non-Cash Working Capital during such period of the Borrower and the
Consolidated Subsidiaries, (vi) the aggregate amount of Investments made by the
Borrower and the Consolidated Subsidiaries during such period and (vii) the
aggregate consideration paid by the Borrower and the Consolidated Subsidiaries
for the acquisition of assets during such period, to the extent in excess of Net
Cash Proceeds resulting from asset dispositions by the Borrower and the
Consolidated Subsidiaries to which Section 4.10 is not applicable.
"Consolidated Fixed Charges" means, for any period, the sum of (a) the
--------------------------
aggregate amount of principal payments of Indebtedness scheduled to have been
made by the Borrower and the Consolidated Subsidiaries during such period,
determined on a consolidated basis, (b) Consolidated Interest Expense and cash
taxes paid or payable for such period, (c) expenditures by the Borrower and the
Consolidated Subsidiaries for fixed assets and capital equipment during such
period and (d) any Restricted Payment made by the Borrower or any Consolidated
Subsidiary during such period.
"Consolidated Indebtedness" means, at any time, the consolidated
-------------------------
Indebtedness of the Borrower and its Consolidated Subsidiaries as at such time.
"Consolidated Interest Expense" means, for any period, without duplication,
-----------------------------
(i) all interest paid or payable on Indebtedness of the Borrower and the
Consolidated Subsidiaries for such period and commitment fees in respect thereof
paid or payable for such period plus (ii) the net amount accrued, whether or not
----
actually paid, by such Persons pursuant to any interest rate or currency swap or
similar transaction entered into pursuant to Section 4.22 during such period (or
minus the net amount receivable, whether or not actually received, by such
- -----
Persons thereunder during such period).
"Consolidated Subsidiary" means, with respect to any Person at any time,
-----------------------
any Subsidiary (other than, in the case of the Borrower or a Consolidated
Subsidiary, ZDTV) or other Person the accounts of which would be consolidated
with those of such first Person in its consolidated financial statements as of
such time; unless otherwise specified, "Consolidated Subsidiary" means a
Consolidated Subsidiary of the Borrower.
"Contingent Reimbursement Obligation" means, with respect to a Letter of
-----------------------------------
Credit, at any time, the amount of the contingent obligation of the Borrower, at
such time, to reimburse the Issuing Bank for any Drawing that may be made under
such Letter of Credit.
64
<PAGE>
"Contract" means (a) any agreement (whether bilateral or unilateral or
--------
executory or non-executory and whether a Person entitled to rights thereunder is
so entitled directly or as a third-party beneficiary), including an indenture,
lease or license, (b) any deed or other instrument of conveyance, (c) any
certificate of incorporation or charter and (d) any by-law.
"Credit Extension" means (a) the making by any Bank or the Swing Line Bank
----------------
of any Loan and (b) the issuance by the Issuing Bank of any Letter of Credit.
"Debt" means any Liability that constitutes "debt" or "Debt" under section
----
101(11) of the Bankruptcy Code or under the Uniform Fraudulent Conveyance Act,
the Uniform Fraudulent Transfer Act or any analogous Applicable Law.
"Default" means any condition or event that constitutes an Event of Default
-------
or that with the giving of notice or lapse of time or both would, unless cured
or waived, become an Event of Default.
"Dollars" and the sign "$" mean lawful money of the United States of
------- -
America.
"Domestic Lending Office" means (a) the branch or office of any Bank set
-----------------------
forth below such Bank's name under the heading "Domestic Lending Office" on
Annex A or, in the case of a Bank that becomes a Bank pursuant to an assignment,
- -------
the branch or office of such Bank set forth as its Domestic Lending Office in
the Notice of Assignment relating to such assignment or (b) such other branch or
office of such Bank designated by such Bank from time to time as the branch or
office at which its Base Rate Loans and LC Participations are to be made or
maintained and, if such Bank is an Issuing Bank, and its Letters of Credit will
be issued and its Contingent Reimbursement Obligations and Drawings are to be
made or maintained.
"Drawing" means (a) any amount disbursed by the Issuing Bank under a Letter
-------
of Credit and (b) as the context may require, the Borrower's obligation to
reimburse the Issuing Bank for such amounts disbursed.
"EBITDA" means, for any Person and for any period, the sum of:
------
(a) Net Income of such Person for such period; plus
----
(b) the sum of the following items (to the extent deducted in the
computation of such Net Income):
(i) depreciation expense;
(ii) amortization expense;
(iii) interest expense and commitment fees paid or payable for such
period with respect to Indebtedness of such Person (other than
InterCompany Indebtedness), including imputed interest on capital
leases and fees and other amounts paid or payable for such period to
any Person under interest rate or currency swap or similar
transactions;
65
<PAGE>
(iv) income tax expense; and
(v) other non-cash items.
EBITDA will be adjusted to (A) exclude the EBITDA attributable to any asset or
business that was disposed of (either directly or as part of an exchange) by
such Person and (B) include the EBITDA attributable to any asset or business
that was acquired (either directly or as part of an exchange) by such Person, in
each case during the period of calculation (as if such asset or business had not
been owned, or had been owned (as applicable), by such Person during such
period).
"EBITDA Percentage" means, as of the date of any sale, pledge or other
-----------------
disposition (whether voluntary or involuntary) of the Capital Securities of a
Consolidated Subsidiary or assets comprising a Business Unit of a Person, the
ratio, expressed as a percentage, derived by dividing (a) EBITDA attributable
thereto for the period of four consecutive fiscal quarters ending on the last
day of the most recent fiscal year or fiscal quarter in respect of which the
Administrative Agent shall have received the financial statements delivered, or
to be delivered, pursuant to Section 5.01(a) or (b) by (b) Consolidated EBITDA
for such period.
"Eligible Assignee" means (a) any commercial bank, savings and loan
-----------------
institution or savings bank organized under the laws of the United States of
America, or any State thereof, and having combined capital and surplus in excess
of $100,000,000, (b) any commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development ("OECD"), or a political subdivision of any such country, and having
----
combined capital and surplus (or the equivalent thereof under the accounting
principles applicable thereto) in excess of $100,000,000; provided that such
--------
bank is acting through a branch, agency or Affiliate of such bank located in the
country in which it is organized or another country that is also a member of the
OECD, (c) the central bank of any country that is a member of the OECD and (d)
any insurance company, pension fund, mutual fund or other financial institution
of recognized standing.
"Enacted" means, as applied to a Regulatory Change, the date such
-------
Regulatory Change first becomes effective or is implemented or first required or
expected to be complied with, whether the same is (a) the result of an enactment
by a government or any agency or political subdivision thereof, a determination
of a court or regulatory authority, a request or directive of a regulatory
authority, or otherwise or (b) enacted, adopted, issued or proposed before or
after the Agreement Date.
"ERISA" means the Employee Retirement Income Security Act of 1974.
-----
"ERISA Affiliate" means, with respect to any Person, any other Person,
---------------
including a Subsidiary or other Affiliate of such first Person, that is a member
of any group of organizations within the meaning of Code Section 414(b), (c),
(m) or (o) of which such first Person is a member.
"Eurodollar Business Day" means any Business Day on which dealings in
-----------------------
Dollar deposits are carried on in the London interbank market and on which
commercial banks are open for domestic and international business (including
dealings in Dollar deposits) in London, England.
66
<PAGE>
"Eurodollar Lending Office" means (a) the branch or office of any Bank set
-------------------------
forth below such Bank's name under the heading "Eurodollar Lending Office" on
Annex A or, in the case of a Bank that becomes a Bank pursuant to an assignment,
- -------
the branch or office of such Bank set forth as its Eurodollar Lending Office in
the Notice of Assignment relating to such assignment or (b) such other branch or
office of such Bank designated by such Bank from time to time as the branch or
office at which its Eurodollar Rate Loans are to be made or maintained.
"Eurodollar Rate" means, for any Interest Period, the rate per annum that
---------------
appears on page 3750 or any successor page of the Telerate screen which displays
British Bankers Association Settlement Rates for deposits in Dollars, of the
offered quotation for deposits in Dollars for a period equal to such Interest
Period, at 11:00 a.m. (London time) on the second Eurodollar Business Day before
the first day of such Interest Period.
"Eurodollar Rate Loan" means a Loan the interest on which is, or is to be,
--------------------
as the context may require, computed on the basis of the Adjusted Eurodollar
Rate.
"Eurodollar Rate Margin" means, with respect to (a) Eurodollar Rate Loans
----------------------
that are Term B Loans outstanding at any time, 1.75% and (b) Eurodollar Rate
Loans that are RC Loans or Term A Loans (i) outstanding during any period on or
before the date three Business Days after the delivery of the financial
statements of the Borrower pursuant to Section 5.01(a) for the quarterly period
ending September 30, 1998, 1.500% and (ii) outstanding during any period
thereafter, such percentage as set forth in the following table opposite the
applicable Leverage Ratio for the four fiscal quarters of the Borrower most
recently completed prior to such period:
<TABLE>
<CAPTION>
Applicable Eurodollar
Leverage Ratio Rate Margin
- ---------------------------------------------- ------------------------------------------
<S> <C>
greater than or equal to 5.75 : 1.00 1.500%
less than 5.75 : 1.00 but greater than or equal to 5.50 : 1.00 1.375%
less than 5.50 : 1.00 but greater than or equal to 5.00 : 1.00 1.125%
less than 5.00 : 1.00 but greater than or equal to 4.50 : 1.00 1.000%
less than 4.50 : 1.00 but greater than or equal to 4.00 : 1.00 0.750%
less than 4.00 : 1.00 but greater than or equal to 3.50 : 1.00 0.625%
less than 3.50 : 1.00 0.500%
</TABLE>
The Eurodollar Rate Margin will be adjusted upon receipt of the Borrower's
quarterly financial statements for each fiscal quarter of the Borrower. Not
later than three Business Days after receipt by the Administrative Agent of the
financial statements required to be delivered pursuant to Section 5.01(a) or (b)
for each fiscal quarter of the Borrower, the Administrative Agent shall
determine the Leverage Ratio for the applicable period and shall promptly notify
the Borrower and the Banks of such determination and of any change in the
Eurodollar Rate Margin resulting therefrom; provided that (x) if financial
--------
statements are not delivered on or prior to the date when due, during the period
from the date when due to the date that is three Business Days after such
financial statements are so delivered or (y) if an Event of Default described in
Section 6.01(a) shall at any time exist, the Eurodollar Rate Margin shall be
1.500%. Any change in the Eurodollar Rate Margin shall (other than one pursuant
to the proviso to the immediately preceding sentence) be effective as of the
-------
date the Administrative Agent so notifies the Borrower
67
<PAGE>
and the Banks with respect to all Loans outstanding on such date, and such new
Eurodollar Rate Margin shall continue in effect until the effective date of the
next redetermination in accordance with this Section, and shall not be
retroactive. Each determination of the Leverage Ratio and Eurodollar Rate Margin
by the Administrative Agent in accordance with this Section shall be conclusive
and binding on the Borrower and the Banks absent manifest error.
"Event of Default" means any of the events specified in Section 6.01.
----------------
"Existing Guaranty" means (a) any Guaranty outstanding on the Agreement
-----------------
Date, to the extent set forth on Schedule 4.06 and (b) any Guaranty that
-------------
constitutes a renewal, extension or replacement of an Existing Guaranty, but
only if (i) at the time such Guaranty is entered into and immediately after
giving effect thereto, no Default would exist, (ii) such Guaranty is binding
only on the obligor or obligors under the Guaranty so renewed, extended or
replaced, (iii) the principal amount of the obligations Guaranteed by such
Guaranty does not exceed the principal amount of the obligations Guaranteed by
the Guaranty so renewed, extended or replaced at the time of such renewal,
extension or replacement and (iv) the obligations Guaranteed by such Guaranty
bear interest at a rate per annum not exceeding the rate borne by the
obligations Guaranteed by the Guaranty so renewed, extended or replaced except
for any increase that is commercially reasonable at the time of such increase.
"Existing Investments" means any Investment listed on Schedule 4.11.
-------------------- -------------
"Exposure" of a Bank means, at any time, an amount equal to the sum of (a)
--------
the aggregate unpaid principal amount at such time of the RC Loans of such Bank,
and (b) the aggregate at such time of the Letter of Credit Amounts of such Bank,
and (c) such Bank's Pro Rata Share of the aggregate unpaid principal amount at
such time of the Swing Loans.
"Federal Funds Rate" means, for any day, the weighted average of the rates
------------------
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York or, if such rate is not so published for any day that
is a Business Day, the average of quotations for such day on such transactions
received by The Bank of New York from three Federal funds brokers of recognized
standing selected by such Bank.
"Funded Current Liability Percentage" has the meaning ascribed to that term
-----------------------------------
in Code Section 401(a)(29)(E).
"Funding Demand" has the meaning ascribed to that term in Section
--------------
1.10(b)(i).
"Generally Accepted Accounting Principles" means generally accepted
----------------------------------------
accounting principles as in effect in the United States of America on, unless
specifically stated otherwise in this Agreement, the Agreement Date.
"Governmental Approval" means any authorization, consent, approval, license
---------------------
(or the like) or exemption (or the like) of, any governmental unit.
68
<PAGE>
"Governmental Registration" means any registration or filing (or the like)
-------------------------
with, or report or notice (or the like) to, any governmental unit.
"Guaranteed Obligations" means all Liabilities of the Borrower and each
----------------------
Guarantor owing to, or in favor or for the benefit of, or purporting to be owing
to, or in favor or for the benefit of, the Administrative Agent or any Bank
under the Loan Documents or under any interest rate or currency swap or similar
transaction entered into pursuant to Section 4.22 (including in the case of a
Bank that is the Issuing Bank or the Swing Line Bank, those in favor of such
Bank in such capacity), in each case (i) WHETHER NOW EXISTING OR HEREAFTER
ARISING OR ACQUIRED, (ii) whether owing to, or in favor or for the benefit of,
or purporting to be owing to or in favor or the benefit of, the Person that is
the Administrative Agent or a Bank as of the Agreement Date or any Person or
Persons that become the Administrative Agent or a Bank by reason of any
succession or assignment at any time thereafter and (iii) WHETHER OR NOT AN
ALLOWABLE CLAIM AGAINST THE BORROWER OR SUCH GUARANTOR UNDER THE BANKRUPTCY CODE
OR OTHERWISE ENFORCEABLE AGAINST THE BORROWER OR SUCH GUARANTOR, AND INCLUDING
IN ANY EVENT, INTEREST AND OTHER LIABILITIES ACCRUING OR ARISING AFTER THE
FILING BY OR AGAINST THE BORROWER OR SUCH GUARANTOR OF A PETITION UNDER THE
BANKRUPTCY CODE OR THAT WOULD HAVE SO ACCRUED OR ARISEN BUT FOR THE FILING OF
SUCH A PETITION.
"Guarantor" shall mean each Person listed on Schedule 9.01 and each Person
--------- -------------
executing and delivering a Guarantor Supplement.
"Guarantor Supplement" shall mean a supplement hereto in the form of
--------------------
Exhibit F.
- ---------
"Guaranty" of any Person means any obligation, contingent or otherwise, of
--------
such Person (a) to pay any Liability of any other Person or to otherwise
protect, or having the practical effect of protecting, the holder of any such
Liability against loss (whether such obligation arises by virtue of such Person
being a partner of a partnership or participant in a joint venture or by
agreement to pay, to keep well, to purchase assets, goods, securities or
services or to take or pay, or otherwise) or (b) incurred in connection with the
issuance by a third Person of a Guaranty of any Liability of any other Person
(whether such obligation arises by agreement to reimburse or indemnify such
third Person or otherwise). The word "Guarantee" when used as a verb has the
correlative meaning.
"Indebtedness" of any Person means (in each case, whether such obligation
------------
is with full or limited recourse), without duplication, (a) any obligation of
such Person for borrowed money, (b) any obligation of such Person evidenced by a
bond, debenture, note or other similar instrument, (c) any obligation of such
Person to pay the deferred purchase price of property or services, except a
trade account payable that arises in the ordinary course of business but only if
and so long as the same is payable on customary trade terms, (d) any obligation
of such Person as lessee under a capital lease, (e) any Mandatorily Redeemable
Stock of such Person owned by any Person other than such Person or an
Indebtedness-Free Subsidiary of such Person (the amount of such Mandatorily
Redeemable Stock to be determined for this purpose as the higher of the
liquidation preference of and the amount payable upon redemption of such
Mandatorily Redeemable Stock), (f) any obligation of such Person to purchase
securities or other property
69
<PAGE>
that arises out of or in connection with the sale of the same or substantially
similar securities or property, (g) any non-contingent obligation of such Person
to reimburse any other Person in respect of amounts paid under a letter of
credit or other Guaranty issued by such other Person to the extent that such
reimbursement obligation remains outstanding after it becomes non-contingent,
(h) any amount that is due and payable under an interest rate or currency swap
or similar obligation, including any amount required to be paid upon the early
termination or other unwinding of any such obligation but excluding any
regularly scheduled interim payments thereunder except to the extent that any
such interim payment is overdue beyond any applicable grace period, except that
if any agreement relating to such obligation provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in each such
case, the amount of such obligation shall be the net amount thereof, (i) any
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) a Lien on any
asset of such Person and (j) any Indebtedness of others Guaranteed by such
Person.
"Indebtedness-Free Subsidiary" means a Subsidiary (a) all of the Capital
----------------------------
Securities, other ownership interests and rights to acquire ownership interests
of which are owned or controlled by the Borrower, by one or more other
Indebtedness-Free Subsidiaries or by the Borrower and one or more other
Indebtedness-Free Subsidiaries and (b) that has no Indebtedness other than the
Loans and Indebtedness owing to the Borrower or another Indebtedness-Free
Subsidiary.
"Indemnified Person" means (a) any Person that is, or at any time was, the
------------------
Administrative Agent, a Bank, the Swing Line Bank, the Issuing Bank, an
Affiliate of any such Person or a director, officer, employee or agent of any
such Person and (b) a Syndication Agent, Co-Documentation Agent or Lead Arranger
(each as identified on the cover of this Agreement), or a director, officer,
employee or agent of any thereof.
"Indenture" means the Indenture dated as of May ___, 1998 between Ziff-
---------
Davis Inc. (formerly known as ZD Inc.) and The Bank of New York providing for
the issuance by the Borrower of the Subordinated Notes.
"Information" means data, certificates, reports, statements (including
-----------
financial statements), opinions of counsel, documents and other information.
"Intellectual Property" means (a) (i) patents and patent rights, (ii)
---------------------
trademarks, trademark rights, trade names, trade name rights, corporate names,
business names, trade styles, service marks, logos and general intangibles of
like nature and (iii) copyrights, in each case whether registered, unregistered
or under pending registration and, in the case of any such that are registered
or under pending registration, whether registered or under pending registration
under the laws of the United States of America or any other country, (b)
reissues, continuations, continuations-in-part and extensions of any
Intellectual Property referred to in clause (a), and (c) rights relating to any
Intellectual Property referred to in clause (a) or (b), including rights under
applications (whether pending under the laws of the United States of America or
any other country) or licenses relating thereto.
70
<PAGE>
"InterCompany Indebtedness" means Indebtedness payable by the Borrower or
-------------------------
any Guarantor to the Borrower or any Guarantor.
"Interest Period" means a period commencing, in the case of the first
---------------
Interest Period applicable to a Eurodollar Rate Loan, on the date of the making
of, or conversion into, such Loan, and, in the case of each subsequent,
successive Interest Period applicable thereto, on the last day of the
immediately preceding Interest Period, and ending in the case of Eurodollar Rate
Loans, depending on the Type of Loan, on the same day in the first, second,
third or sixth, and if such type of Eurodollar Rate Loan is made available by
all of the Banks, ninth or twelfth calendar month thereafter, except that (a)
any Interest Period that would otherwise end on a day that is not a Eurodollar
Business Day shall be extended to the next succeeding Eurodollar Business Day
unless such Eurodollar Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Eurodollar Business
Day and (b) any Interest Period that begins on the last Eurodollar Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month in which such Interest Period ends) shall end on the
last Eurodollar Business Day of a calendar month.
"Interest Rate Protection Agreements" means, for any Person, an interest
-----------------------------------
rate swap, cap or collar agreement or similar arrangement between such Person
and a Bank or other financial institution having combined capital and surplus of
at least $200,000,000 or that has (or that is a subsidiary of a bank holding
company that has) publicly traded unsecured long-term debt securities given a
rating of A- (or the equivalent rating then in effect) or better by Standard &
Poor's Ratings Group or a rating of A3 (or the equivalent rating then in effect)
or better by Moody's Investors Service, Inc., providing for the transfer or
mitigation of increases in interest rates either generally or under specific
contingencies.
"Investment" of any Person means (a) any Capital Security, evidence of
----------
Indebtedness or other security or instrument issued by any other Person, (b) any
loan, advance or extension of credit to (including Guaranties of Liabilities
of), or any contribution to the capital of, any other Person and (c) any other
investment in any other Person. An Investment shall be deemed to be
"outstanding", except to the extent that it has been paid or otherwise satisfied
in cash (whether as a payment of principal, interest, dividend or other
distribution in respect thereof) or the Person making such Investment has
received cash in consideration for the sale thereof, notwithstanding the fact
that such Investment may otherwise have been forgiven, released, canceled or
otherwise nullified.
"Investment Amount" means, with respect to any Investment, the aggregate
-----------------
amount of consideration paid, and other transaction costs incurred, by the
Borrower and Subsidiaries in connection with the making or acquisition thereof.
"Issuing Bank" means the Bank that, with its consent and the consent of
------------
each existing Issuing Bank, if any, is designated as such by the Borrower. On
the Agreement Date such Bank is The Bank of New York.
"Issuing Bank's Office" means, at any time that the Issuing Bank is the
---------------------
Administrative Agent, the Administrative Agent's Office and, at any other time,
the address of such Bank determined in accordance with the provisions of Section
10.01(b).
71
<PAGE>
"LC Participation" has the meaning ascribed to that term in Section
----------------
1.10(a).
"LC Sublimit" means at any time $25,000,000.
-----------
"Lender Group" means either the Term A Banks, the Term B Banks or the RC
------------
Banks.
"Lending Office" of any Bank, the Issuing Bank or the Swing Line Bank means
--------------
the Domestic Lending Office or the Eurodollar Lending Office of such Person.
"Letter of Credit" means (a) a letter of credit issued by the Issuing Bank
----------------
pursuant to Section 1.07(a) and (b) an amended Letter of Credit (including an
amended Letter of Credit which is the amendment of a Letter of Credit which is
such by virtue of this clause (b)).
"Letter of Credit Amount" means, with respect to a Letter of Credit in
-----------------------
which a Participating Bank has an LC Participation, at any time, an amount equal
to the product of (a) the sum of (i) the aggregate unpaid principal amount of
all Drawings under such Letter of Credit at such time and (ii) the amount of the
Contingent Reimbursement Obligation with respect to such Letter of Credit at
such time, multiplied by (b) such Participating Bank's Participating Bank
Percentage with respect to such Letter of Credit.
"Letter of Credit Loan Document Claim" means a Loan Document Related Claim
------------------------------------
arising under or with respect to a Letter of Credit or Application.
"Leverage Ratio" means, as of any date of determination, the ratio of
--------------
Consolidated Indebtedness outstanding on such date of determination to
Consolidated EBITDA for the four consecutive fiscal quarters of the Borrower
ending on, or most recently ended prior to, such date; provided that for
--------
purposes of determining (a) whether the condition specified in Section 2.02(c)
will be fulfilled as of the requested time for the making of any Credit
Extension, (ii) whether any Restricted Payment is permitted to be made pursuant
to Section 4.08, (iii) whether any Investment is permitted to be made or
Business Units are permitted to be acquired pursuant to Section 4.11 and (iv)
whether any Prepayment of Subordinated Indebtedness is permitted to be made
pursuant to Section 4.14, Consolidated EBITDA shall be calculated on the basis
of the period of four consecutive fiscal quarters ending on the last day of the
most recent fiscal year or fiscal quarter in respect of which the Administrative
Agent shall have received the financial statements delivered, or to be
delivered, pursuant to Section 5.01(a) or (b).
"Liability" of any Person means (in each case, whether with full or limited
---------
recourse) any indebtedness, liability, obligation, covenant or duty of or
binding upon, or any term or condition to be observed by or binding upon, such
Person or any of its assets, of any kind, nature or description, direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, whether arising under Contract, Applicable Law or
otherwise, whether now existing or hereafter arising, and whether for the
payment of money or the performance or non-performance of any act.
"License and Services Agreement" means the License and Services Agreement
------------------------------
governing the management of ZDTV dated as of July 28, 1997, among Ziff-Davis
Inc., ZDTV, MAC Holdings America, Inc., a [______________] corporation and MAC
Inc., as filed in the Registration Statement.
72
<PAGE>
"Lien" means, with respect to any property or asset (or any income or
----
profits therefrom) of any Person (in each case whether the same is consensual or
nonconsensual or arises by Contract, operation of law, legal process or
otherwise) (a) any mortgage, lien, pledge, attachment, levy or other security
interest of any kind thereupon or in respect thereof or (b) any other
arrangement, express or implied, under which the same is subordinated,
transferred, sequestered or otherwise identified so as to subject the same to,
or make the same available for, the payment or performance of any Liability in
priority to the payment of the ordinary, unsecured Liabilities of such Person.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset that it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Like-Business Investments" means Investments in Persons engaged in the
-------------------------
same or directly related lines of business as the Borrower.
"Loan" means any RC Loan, Term A Loan, Term B Loan or Swing Loan.
----
"Loan Document Related Claim" means any claim or dispute (whether arising
---------------------------
under Applicable Law, including any "environmental" or similar law, under
Contract or otherwise and, in the case of any proceeding relating to any such
claim or dispute, whether civil, criminal, administrative or otherwise) in any
way arising out of, related to, or connected with, the Loan Documents, the
relationships established thereunder or any actions or conduct thereunder or
with respect thereto, whether such claim or dispute arises or is asserted before
or after the Agreement Date or before or after the Repayment Date.
"Loan Document Representation and Warranty" means any "Representation and
-----------------------------------------
Warranty" as defined in any Loan Document and any other representation or
warranty made or deemed made under any Loan Document.
"Loan Documents" means this Agreement, the Notes, each Application and each
--------------
Letter of Credit, each Pledge Agreement and each Subordination Agreement.
"Loan Party" means any Person (other than the Administrative Agent, the
----------
Issuing Bank, the Swing Line Bank or a Bank) that is a party to a Loan Document.
"MAC Inc." means MAC Inc., a Japanese corporation.
--------
"Mandatorily Redeemable Stock" means, with respect to any Person, any share
----------------------------
of such Person's capital stock to the extent that it is (a) redeemable, payable
or required to be purchased or otherwise retired or extinguished, or convertible
into any Indebtedness or other Liability of such Person, (i) at a fixed or
determinable date, whether by operation of a sinking fund or otherwise, (ii) at
the option of any Person other than such Person or (iii) upon the occurrence of
a condition not solely within the control of such Person, such as a redemption
required to be made out of future earnings or (b) convertible into Mandatorily
Redeemable Stock.
"Materially Adverse Effect" means, (a) with respect to any Person, any
-------------------------
materially adverse effect on such Person's business, assets, Liabilities,
financial condition, results of operations or business prospects, (b) with
respect to a group of Persons "taken as a whole", any
73
<PAGE>
materially adverse effect on such Persons' business, assets, Liabilities,
financial condition, results of operations or business prospects taken as a
whole on, where appropriate, a consolidated basis in accordance with Generally
Accepted Accounting Principles, (c) with respect to any Loan Document, any
materially adverse effect on the binding nature, validity or enforceability
thereof as an obligation of any Loan Party that is a party thereto and (d) with
respect to any Collateral, or any category of Collateral, pledged by any Loan
Party, a materially adverse effect on its value as Collateral or an adverse
effect on the validity, perfection, priority or enforceability of the Security
Interest therein.
"Maximum Permissible Rate" means, with respect to interest payable on any
------------------------
amount, the rate of interest on such amount that, if exceeded, could, under
Applicable Law, result in (a) civil or criminal penalties being imposed on the
payee or (b) the payee's being unable to enforce payment of (or, if collected,
to retain) all or any part of such amount or the interest payable thereon.
"Money Market Investment" means (a) any security issued or directly and
-----------------------
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof having a remaining maturity of not more than one year,
(b) any certificate of deposit, eurodollar time deposit or bankers' acceptance
with remaining maturity of not more than one year, any overnight bank deposit,
and any demand deposit account, in each case with any Bank or with any United
States commercial bank having capital and surplus in excess of $500,000,000 and
rated B or better by Thomson Bankwatch Inc., (c) any repurchase obligation with
a term of not more than seven days entered into with (i) any financial
institution meeting the qualifications specified in clause (b) above or (ii) any
primary dealer of national reputation reporting daily to the Federal Reserve
Bank of New York and (d) any commercial paper issued by any Bank or the parent
corporation of any Bank and any other commercial paper of issuers rated A-2 by
Standard & Poor's Ratings Service or Prime-2 by Moody's Investors Service, Inc.
and in any case having a remaining maturity of not more than six months.
"Multiemployer Benefit Plan" means any Benefit Plan that is a multiemployer
--------------------------
plan as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to (a) the disposition of any
-----------------
asset, including Capital Securities of Persons other than the Person effecting
the disposition, (i) the gross cash proceeds from such disposition (including
(A) insurance payments and condemnation awards and (B) principal payments in
respect of any notes or other instruments received as consideration for such
disposition) less (ii) (A) all documented taxes, fees, including underwriting
----
and placement fees, and reasonable expenses payable by the Borrower or any
Subsidiary in connection with such disposition, including income taxes payable
as a consequence of such disposition, (B) the principal amount of, and the
premium, if any, and interest on, any Indebtedness (other than the Loans)
secured by such asset and required to be prepaid upon such disposition and (C)
amounts required to be maintained as a reserve against liabilities associated
with such disposition under Generally Accepted Accounting Principles as then in
effect (provided that such amounts shall cease to be deducted from Net Cash
Proceeds and may become payable whenever they cease to be so required to be
maintained) and (b) the disposition of any Capital Security that is a Capital
Security of the Person effecting such disposition, (i) the gross cash proceeds
from such disposition (including principal payments in respect of any notes
74
<PAGE>
or other instruments received as consideration for such disposition) less (ii)
----
all underwriting, placement and other fees and discounts and any other expenses
reasonably incurred in connection with such disposition.
"Net Income" means, for any Person and for any period, the net income (or
----------
net loss) of such Person for such period; provided that such amount shall be
--------
adjusted to exclude (to the extent otherwise included therein):
(a) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of income accrued
during such period and except for normal accruals and reversals in the
ordinary course of business;
(b) any write-up or write-down of any asset;
(c) any net gain or loss from the collection of the proceeds of any
insurance policies;
(d) any gain or loss arising from the acquisition of any securities or
Indebtedness of such Person and any net loss arising from the exercise of
any warrant of such Person;
(e) any deferred credit representing the excess of equity in any
Person at the date of acquisition over the cost of the investment in such
Person;
(f) any aggregate net gain (or loss) during such period arising from
the sale, exchange or other disposition of capital assets (such term to
include all fixed assets, whether tangible or intangible, all inventory
sold in conjunction with the disposition of fixed assets, and all
securities) other than any sale, exchange or other disposition in the
ordinary course of business; provided that there shall also be excluded any
--------
related charges for taxes on such capital assets;
(g) any net gains or losses resulting from the extinguishment or
defeasance of any Indebtedness;
(h) any earnings or losses from discontinued businesses; and
(i) all other extraordinary items.
"New Subordinated Indebtedness" means Indebtedness of the Borrower incurred
-----------------------------
after the Agreement Date; provided that such Indebtedness shall (a) not require
--------
any scheduled payment or purchase or redemption of principal prior to the first
anniversary of the Term B Termination Date, (b) bear interest at a commercially
reasonable rate at the time of incurrence thereof, (c) be subject to other terms
and conditions no more burdensome in any material manner to the Borrower or any
Subsidiary than the Subordinated Notes and (d) is subject to a Subordination
Agreement.
"Non-Cash Working Capital" means, as applied to a Person, at any time, (a)
------------------------
the amount, at such time, of such Person's current assets that are at such time
reflected, or would, in
75
<PAGE>
accordance with Generally Accepted Accounting Principles, be required to be
reflected at such time on a balance sheet of such Person minus all cash and cash
-----
equivalents (including Money Market Investments) of such Person at such time,
minus (b) the amount, at such time, of such Person's current liabilities, that
- -----
are at such time reflected, or would, in accordance with Generally Accepted
Accounting Principles, be required to be reflected at such time, on a balance
sheet of such Person minus the current portion of long-term Indebtedness of
-----
such Person at such time.
"Non-Material Subsidiary" means, as of any date, any Subsidiary of the
-----------------------
Borrower (a) the gross revenues of which account for less than 10% of the gross
revenues of the Borrower and the Consolidated Subsidiaries, on a consolidated
basis as of such date and (b) the fair saleable value of which, together with
the fair saleable value of all other Non-Matrial Subsidiaries as of such date,
value is less than $50,000,000. For purposes of this definition "fair saleable
value" of a Subsidiary means the fair market value of such Subsidiary in a
disposition of all or substantially all of its assets in an arms' length
transaction on the date of determination, as reasonably determined by the board
of directors of the Borrower.
"Non-US Bank" means a Person that is not a United States Person and not
-----------
described in Section 881(c)(3) of the Code.
"Nonparticipating Bank" means a Bank designated by the Issuing Bank as a
---------------------
Bank with respect to which a Bank Nonparticipation has occurred. The
designation of a Bank by the Issuing Bank as a "Nonparticipating Bank" shall not
affect the status of such Bank as a Participating Bank in respect of Letters of
Credit issued prior to the date of such designation.
"Note" means any Term A Note, Term B Note, RC Note or Swing Loan Note and,
----
in each case other than the Swing Loan Note, included such a Note that is a
Registered Note.
"Notice of Assignment" means any notice to the Borrower, the Administrative
--------------------
Agent, the Issuing Bank and the Swing Line Bank with respect to an assignment
pursuant to Section 10.10(a), in the form of Schedule 10.10(a).
-----------------
"Offering" means the sale by the Borrower of Capital Securities in a public
--------
offering as described in the Registration Statement.
"Participating Bank" means, with respect to any Letter of Credit, a Bank
------------------
that is not a Nonparticipating Bank.
"Participating Bank Percentage" means, with respect to a Participating Bank
-----------------------------
for any Letter of Credit, the percentage obtained by dividing such Participating
Bank's RC Commitment at the time of the issuance of such Letter of Credit by the
sum of the RC Commitments at such time of all of the Participating Banks with
respect to such Letter of Credit.
"Payment Date" means the last day of March, June, September and December
------------
during each calendar year from the Agreement Date to the Repayment Date.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
76
<PAGE>
"Permitted Guaranty" means any Guaranty that is (a) an endorsement of a
------------------
check for collection in the ordinary course of business, (b) a Guaranty of and
only of the Guaranteed Obligations, obligations of the Borrower under Cash
Management Arrangements or reimbursement obligations of the Borrower with
respect to letters of credit to which Section 4.06 is not applicable by virtue
of clause (d) thereof, (c) a Guaranty constituting an Investment to which
Section 4.11 is not applicable by virtue of clause (c)(ii) or (f) of such
Section, (d) a Guaranty of Indebtedness to which Section 4.05 is not applicable
by virtue of clause (a)(v) of such Section or (e) a Guaranty of a Liability of
the Borrower or a Guarantor constituting Indebtedness other than Indebtedness to
which Section 4.05 is not applicable by virtue of clause (a)(v) of such Section;
provided that such Guaranty and such Liability shall each be incurred in the
- --------
ordinary course of business of the party obligated thereunder and shall be upon
terms and conditions reasonable and customary in the industry in which such
party conducts its business.
"Permitted Lien" means (a) with respect to any asset that does not
--------------
constitute Collateral, (i) any Lien securing a tax, assessment or other
governmental charge or levy or the claim of a materialman, mechanic, carrier,
warehouseman or landlord for labor, materials, supplies or rentals incurred in
the ordinary course of business, but only if payment thereof shall not at the
time be required to be made in accordance with Section 4.01(d) and foreclosure,
distraint, sale or other similar proceedings shall not have been commenced; (ii)
any Lien consisting of a deposit or pledge made in the ordinary course of
business in connection with, or to secure payment of, obligations under worker's
compensation, unemployment insurance or similar legislation; (iii) any Lien
arising pursuant to an order of attachment, distraint or similar legal process
arising in connection with legal proceedings, but only if and so long as the
execution or other enforcement thereof is not unstayed for more than 20 days;
(iv) any Lien existing on (x) any property or asset of any Person at the time
such Person becomes a Consolidated Subsidiary or (y) any property or asset at
the time such property or asset is acquired by the Borrower or a Consolidated
Subsidiary, but only, in the case of (x) and (y), if and so long as (A) such
Lien was not created in contemplation of such Person becoming a Consolidated
Subsidiary or such property or asset being acquired, (B) such Lien is and will
remain confined to the property or asset subject to it at the time such Person
becomes a Consolidated Subsidiary or such property or asset is acquired and to
fixed improvements thereafter erected on such property or asset, (C) such Lien
secures only the obligation secured thereby at the time such Person becomes a
Consolidated Subsidiary or such property or asset is acquired and (D) the
obligation secured by such Lien is not in default; (v) any Lien in existence on
the Agreement Date to the extent set forth on Schedule 4.07, but only, in the
-------------
case of each such Lien, to the extent it secures an obligation outstanding on
the Agreement Date to the extent set forth on such Schedule; (vi) any Lien
securing Purchase Money Indebtedness but only if, in the case of each such Lien,
(x) such Lien shall at all times be confined solely to the property or asset the
purchase price of which was financed through the incurrence of the Purchase
Money Indebtedness secured by such Lien and to fixed improvements thereafter
erected on such property or asset and (y) such Lien attached to such property or
asset within 30 days of the acquisition of such property or asset; or (vii) any
Lien constituting a renewal, extension or replacement of a Lien constituting a
Permitted Lien by virtue of clause (v), (vi), (vii) or (viii) of this
definition, but only if (v) at the time such Lien is granted and immediately
after giving effect thereto, no Default would exist, (w) such Lien is limited to
all or a part of the property or asset that was subject to the Lien so renewed,
extended or replaced and to fixed improvements thereafter erected on such
property or asset, (x) the principal amount of the obligations
77
<PAGE>
secured by such Lien does not exceed the principal amount of the obligations
secured by the Lien so renewed, extended or replaced, (y) if the principal
amount of such obligations constitutes Subordinated Indebtedness, such
obligations continue to constitute Subordinated Indebtedness and (z) the
obligations secured by such Lien bear interest at a rate per annum not exceeding
the rate borne by the obligations secured by the Lien so renewed, extended or
replaced except for any increase that is commercially reasonable at the time of
such increase; and (b) with respect to any asset that constitutes Collateral,
any Lien that constitutes a "Permitted Lien" under the applicable Pledge
Agreement.
"Permitted Restrictive Covenant" means (a) any covenant or restriction
------------------------------
contained in any Loan Document, (b) any covenant or restriction binding upon any
Person at the time such Person becomes a Consolidated Subsidiary if the same is
not created in contemplation thereof, (c) any covenant or restriction of the
type contained in Section 4.07 that is contained in any Contract evidencing or
providing for the creation of or concerning Purchase Money Indebtedness so long
as such covenant or restriction is limited to the property purchased therewith
and (d) any covenant or restriction that (i) is not more burdensome than an
existing Permitted Restrictive Covenant that is such by virtue of clause (b),
(c) or (d), (ii) is contained in a Contract constituting a renewal, extension or
replacement of the Contract in which such existing Permitted Restrictive
Covenant is contained and (iii) is binding only on the Person or Persons bound
by such existing Permitted Restrictive Covenant.
"Person" means any individual, sole proprietorship, corporation, limited
------
liability company, partnership, trust, unincorporated organization, mutual
company, joint stock company, estate, union, employee organization, government
or any agency or political subdivision thereof or, for the purpose of the
definition of "ERISA Affiliate," any trade or business.
"Pledge Agreement" means a Securities and Instrument Pledge Agreement in
----------------
the form of Exhibit E with respect to which the Administrative Agent, if it
---------
shall have requested the same, shall have received an opinion, in form and
substance satisfactory to the Administrative Agent, of counsel, acceptable to
the Administrative Agent, to the effect that such Pledge Agreement has been duly
authorized, executed and delivered by the obligee subject thereto and
constitutes a legally binding agreement of such Person, enforceable against such
Person in accordance with its terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization and other similar laws affecting the
enforcement of creditors' rights generally or otherwise in the form and
substance satisfactory to the Administrative Agent, pursuant to which the
Borrower shall create Liens on the Collateral in favor of the Administrative
Agent, for the ratable benefit of the Banks.
"Pledgor" means any Person (other than the Administrative Agent) that is
-------
party to a Pledge Agreement.
"Post-Default Rate" means the rate otherwise applicable under Section
-----------------
1.03(a) plus 2.0%.
"Predecessor Indebtedness" means Indebtedness of the Borrower or any
------------------------
Consolidated Subsidiary other than Indebtedness to which Section 4.05 is not
applicable.
"Prepayment" means, with respect to Subordinated Indebtedness, any payment
----------
on account of the principal of such Indebtedness, other than a payment of
principal at a regularly scheduled maturity (without giving affect to any
acceleration or required or optional
78
<PAGE>
prepayment), whether such payment is by way of purchase, repayment, defeasance,
redemption or other entitlement.
"Prime Rate" means the prime commercial lending rate of The Bank of New
----------
York, as publicly announced to be in effect from time to time. The Prime Rate
shall be adjusted automatically, without notice, on the effective date of any
change in such prime commercial lending rate. The Prime Rate is not necessarily
The Bank of New York's lowest rate of interest.
"Prohibited Transaction" means any transaction that is prohibited under
----------------------
Code Section 4975 or ERISA Section 406 and not exempt under Code Section 4975 or
ERISA Section 408.
"Pro Rata Share," as applied to a Bank means, at any time, the percentage
--------------
obtained by dividing the amount of such Bank's RC Commitment at such time by the
sum of the RC Commitments at such time of all the Banks.
"Purchase Money Indebtedness" means (a) Indebtedness of a Person that is
---------------------------
incurred to finance part or all of (but not more than) the purchase price of a
tangible asset, provided that (i) neither the Borrower nor any Consolidated
--------
Subsidiary had at any time prior to such purchase any interest in such asset
other than a security interest or an interest as lessee under an operating lease
and (ii) such Indebtedness is incurred within 30 days after such purchase, or
(b) Indebtedness that (i) constitutes a renewal, extension or refunding of, but
not an increase in the principal amount of, Purchase Money Indebtedness that is
such by virtue of clause (a) or (b), (ii) bears interest at a rate per annum
that is commercially reasonable at the time such Indebtedness is incurred and
(iii) if the Indebtedness that is being renewed, extended or refunded
constitutes Subordinated Indebtedness, such Indebtedness constitutes
Subordinated Indebtedness.
"RC Banks" means, at any time, all of the Banks having, individually, RC
--------
Commitments in excess of zero at such time or, if the RC Commitments shall have
expired or been terminated, any Exposures outstanding at such time.
"RC Commitment" of any Bank means (a) the amount set forth opposite such
-------------
Bank's name under the heading "RC Commitment" on Annex A or, in the case of a
-------
Bank that becomes a Bank pursuant to an assignment, the amount of the assignor's
RC Commitment assigned to such Bank, in either case as the same may be increased
or reduced from time to time pursuant to Section 1.14 or pursuant to assignments
in accordance with Section 10.10(a) or (b) as the context may require, the
obligation of such Bank to make RC Loans and acquire and fund LC Participations
in an aggregate unpaid principal amount not exceeding such amount.
"RC Loan" means any amount advanced by a Bank pursuant to Section 1.01(c).
-------
"RC Note" means any promissory note in the form of Exhibit A-III.
------- -------------
"RC Termination Date" means March 31, 2005.
-------------------
"Register" means a register kept at the Administrative Agent's office by
--------
the Administrative Agent on behalf of the Borrower, at no extra charge to the
Borrower, on which the Administrative Agent records the names of the Registered
holders of Registered Notes.
79
<PAGE>
"Registered Holder" means the Person in whose name a Registered Note is
-----------------
registered.
"Registered Note" means a Note the name of the holder of which has been
---------------
recorded on the Register. The registration of a Note shall constitute the
registration of the Loan evidenced thereby.
"Registration Statement" means the Form S-1 Registration Statement filed
----------------------
with the Securities and Exchange Commission by the Borrower on April 6, 1998, as
amended as of April 24, 1998, without giving effect to any subsequent amendments
or modifications thereto, together with the final prospectus dated April [28],
1998 relating to the issue of 25,800,000 shares of common stock of the Borrower,
as originally filed with the Securities and Exchange Commission without giving
effect to any subsequent amendments or modifications thereto, with such changes
to the pricing and number of shares offered in such issuance as the Reviewing
Agents shall have approved.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal
------------
Reserve System.
"Regulation X" means Regulation X of the Board of Governors of the Federal
------------
Reserve System.
"Regulatory Change" means any Applicable Law, interpretation, directive,
-----------------
determination, request or guideline (whether or not having the force of law), or
any change therein or in the administration or enforcement thereof, that is
Enacted after the Agreement Date, including any such that imposes, increases or
modifies any Tax, reserve requirement, insurance charge, special deposit
requirement, assessment or capital adequacy requirement, but excluding any such
that imposes, increases or modifies any Bank Tax.
"Reorganization" means the transactions described and referred to under the
--------------
heading "The Reorganization" in the Registration Statement, including, without
limitation, the acquisition by the Borrower of the MAC Assets and the Offerings
(each as defined in the Registration Statement).
"Repayment Date" means the later of the date of (a) the termination of the
--------------
Commitments (whether as a result of the occurrence of the Term B Termination
Date, reduction to zero pursuant to Section 1.14, or termination pursuant to
Section 6.02), (b) the payment in full of the Loans, the Letter of Credit
Amounts and all other amounts payable or accrued under the Loan Documents and
(c) the termination, and the return to the Issuing Bank, of all Letters of
Credit.
"Reportable Event" means, with respect to any Benefit Plan of any Person,
----------------
(a) the occurrence of any of the events set forth in ERISA Sections 4043(c),
other than an event as to which the requirement of 30 days' notice, or the
penalty for failure to provide such notice, has been waived by the PBGC, (b) the
existence of conditions sufficient to require advance notice to the PBGC
pursuant to ERISA Section 4043(b), (c) the occurrence of any of the events set
forth in ERISA Sections 4062(e) or 4063(a) or the regulations thereunder, (d)
any event requiring such
80
<PAGE>
Person or any of its ERISA Affiliates to provide security to such Benefit Plan
under Code Section 401(a)(29) or (e) any failure to make a payment required by
Code Section 412(m) with respect to such Benefit Plan.
"Representation and Warranty" means any representation or warranty made
---------------------------
pursuant to or under (a) Article 2, Article 3, Section 5.02 or any other
provision of this Agreement or (b) any amendment to, or waiver of rights under,
this Agreement, WHETHER OR NOT, IN THE CASE OF ANY REPRESENTATION OR WARRANTY
REFERRED TO IN CLAUSE (a) OR (b) OF THIS DEFINITION (EXCEPT, IN EACH CASE, TO
THE EXTENT OTHERWISE EXPRESSLY PROVIDED), THE INFORMATION THAT IS THE SUBJECT
MATTER THEREOF IS WITHIN THE KNOWLEDGE OF THE BORROWER.
"Required Banks" means, at any time, Banks having 51% or more of the
--------------
aggregate amount of the Commitments or, if the Commitments shall have expired or
been terminated, Banks having 51% or more of the aggregated amount of the Term A
Loans, Term B Loans and Exposures outstanding.
"Reserve Requirement" means, at any time, the then current maximum rate for
-------------------
which reserves (including any marginal, supplemental or emergency reserve) are
required to be maintained under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding five billion Dollars
against "Eurocurrency liabilities", as that term is used in Regulation D. The
Adjusted Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Requirement.
"Responsible Officer" of any Person means a chairman, chief executive
-------------------
officer, president, vice president, chief financial officer or treasurer of such
Person, or such other officer of such Person as shall be acceptable to the
Administrative Agent.
"Restricted Payment" means, with respect to any Person, any payment with
------------------
respect to or on account of any of such Person's Capital Securities, including
any dividend or other distribution on, any payment of interest on or principal
of, and any payment on account of any purchase, redemption, retirement,
exchange, defeasance or conversion of, or on account of any claim relating to or
arising out of the offer, sale or purchase of, any such Capital Securities. For
the purposes of this definition, a "payment" shall include the transfer of any
asset or the incurrence of any Indebtedness or other Liability (the amount of
any such payment to be the fair market value of such asset or the amount of such
obligation, respectively) but shall not include the issuance by the Borrower of
any capital stock of the Borrower other than Mandatorily Redeemable Stock.
"Reviewing Agents" means the Administrative Agent and Morgan Stanley Senior
----------------
Funding, Inc.
"Secured Obligations" means all Liabilities of the Borrower and each
-------------------
Guarantor owing to, or in favor or for the benefit of, or purporting to be owing
to, or in favor or for the benefit of, the Administrative Agent or any Bank
under the Loan Documents or under any interest rate or currency swap or similar
transaction entered into pursuant to Section 4.22 (including in the case of a
Bank that is the Issuing Bank or the Swing Line Bank, those in favor of such
Bank in such
81
<PAGE>
capacity), in each case (i) WHETHER NOW EXISTING OR HEREAFTER ARISING OR
ACQUIRED, (ii) whether owing to, or in favor or for the benefit of, or
purporting to be owing to or in favor or the benefit of, the Person that is the
Administrative Agent or a Bank as of the Agreement Date or any Person or Persons
that become the Administrative Agent or a Bank by reason of any succession or
assignment at any time thereafter and (iii) WHETHER OR NOT AN ALLOWABLE CLAIM
AGAINST THE BORROWER OR SUCH GUARANTOR UNDER THE BANKRUPTCY CODE OR OTHERWISE
ENFORCEABLE AGAINST THE BORROWER OR SUCH GUARANTOR AND INCLUDING, IN ANY EVENT,
INTEREST AND OTHER LIABILITIES ACCRUING OR ARISING AFTER THE FILING BY OR
AGAINST THE BORROWER OR SUCH GUARANTOR OF A PETITION UNDER THE BANKRUPTCY CODE
OR THAT WOULD HAVE SO ACCRUED OR ARISEN BUT FOR THE FILING OF SUCH A PETITION.
"Secured Party" has the meaning ascribed to such term in the Pledge
-------------
Agreements.
"Security Interest" means the Liens created, or purported to be created, by
-----------------
the Loan Documents.
"Senior Leverage Ratio" means, as of any date of determination, the ratio
---------------------
of Consolidated Indebtedness outstanding on such date of determination, less the
aggregate principal amount of Subordinated Indebtedness outstanding on such date
of determination, to Consolidated EBITDA for the four consecutive fiscal
quarters of the Borrower ending on, or most recently ended prior to, such date;
provided that for purposes of determining (a) whether the condition specified in
- --------
Section 2.02(c) will be fulfilled as of the requested time for the making of any
Credit Extension, (ii) whether any Restricted Payment is permitted to be made
pursuant to Section 4.08, (iii) whether any Investment is permitted to be made
or Business Units are permitted to be acquired pursuant to Section 4.11 and (iv)
whether any Prepayment of Subordinated Indebtedness is permitted to be made
pursuant to Section 4.14, Consolidated EBITDA shall be calculated on the basis
of the period of four consecutive fiscal quarters ending on the last day of the
most recent fiscal year or fiscal quarter in respect of which the Administrative
Agent shall have received the financial statements delivered, or to be
delivered, pursuant to Section 5.01(a) or (b).
"SOFTBANK Corp." means SOFTBANK Corp., a Japanese corporation.
--------------
"Subordinated Indebtedness" means Indebtedness under the Affiliate Note,
-------------------------
the Subordinated Notes and New Subordinated Indebtedness.
"Subordinated Notes" means the ___% Senior Subordinated Notes of the
------------------
Borrower, due 2008, issued pursuant to the Indenture.
"Subordination Agreement" means a Subordination Agreement substantially in
-----------------------
the form of Exhibit B, with respect to which the Administrative Agent, if it
---------
shall have requested the same, shall have received an opinion, in form and
substance satisfactory to the Administrative Agent, of counsel, acceptable to
the Administrative Agent, to the effect that such Subordination Agreement has
been duly authorized, executed and delivered by the obligee subject thereto and
constitutes a legally binding agreement of such Person, enforceable against such
Person in
82
<PAGE>
accordance with its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization and other similar laws affecting the enforcement of
creditors' rights generally.
"Subsidiary" means, with respect to any Person, any other Person (i)
----------
securities of which having ordinary voting power to elect a majority of the
board of directors (or other persons having similar functions) or (ii) other
ownership interests of which ordinarily constituting a majority voting interest,
are at the time, directly or indirectly, owned or controlled by such first
Person, or by one or more of its Subsidiaries, or by such first Person and one
or more of its Subsidiaries; unless otherwise specified, "Subsidiary" means a
Subsidiary of the Borrower, and "Subsidiaries" means the Subsidiaries of the
Borrower.
"Swing Line Availability" means, at any time, the lesser of (a) the Swing
-----------------------
Line Sublimit at such time less the aggregate principal amount of outstanding
Swing Loans at such time and (b) the aggregate amount of the RC Commitments at
such time less the aggregate amount of the Exposures of all of the Banks at such
time.
"Swing Line Bank" means any Bank that, with its consent and the consent of
---------------
each existing Swing Line Bank, if any, is designated as such by the Borrower.
On the Agreement Date such Bank is The Bank of New York.
"Swing Line Bank's Office" means, at any time that the Swing Line Bank is
------------------------
the Administrative Agent, the Administrative Agent's Office and, at any other
time, the address of such Bank determined in accordance with the provisions of
Section 10.01(b).
"Swing Line Sublimit" means at any time $25,000,000.
-------------------
"Swing Loan" means an amount advanced by the Swing Line Bank pursuant to
----------
Section 1.01(d).
"Swing Loan Note" means a promissory note in the form attached hereto as
---------------
Exhibit A-IV.
- ------------
"Swing Loan Participation" has the meaning ascribed to such term in Section
------------------------
1.05(b)(ii)(A).
"Tax" means any federal, state, local or foreign tax, assessment or other
---
governmental charge (including any withholding tax) upon a Person or upon its
assets, revenues, income or profits.
"Term A Banks" means, at any time, all of the Banks having, individually,
------------
Term A Commitments in excess of zero at such time or, if the Term A Commitments
shall have expired or been terminated, any Term A Loans outstanding at such
time.
"Term A Commitment" of any Bank means (a) the amount set forth opposite
-----------------
such Bank's name under the heading "Term A Commitment" on Annex A or, in the
-------
case of a Bank that becomes a Bank pursuant to an assignment, the amount of the
assignor's Term A Commitment assigned to such Bank, in either case as the same
may be increased or reduced from time to time pursuant to Section 1.14 or
pursuant to assignments in accordance with Section 10.10(a) or (b) as
83
<PAGE>
the context may require, the obligation of such Bank to make Term A Loans in an
aggregate unpaid principal amount not exceeding such amount.
"Term A Loan" means any amount advanced by a Bank pursuant to Section
-----------
1.01(a).
"Term A Note" means any promissory note in the form of Exhibit A-I.
----------- -----------
"Term A Termination Date" means March 31, 2005.
-----------------------
"Term B Banks" means, at any time, all of the Banks having, individually,
------------
Term B Commitments in excess of zero at such time or, if the Term B Commitments
shall have expired or been terminated, any Term B Loans outstanding at such
time.
"Term B Commitment" of any Bank means (a) the amount set forth opposite
-----------------
such Bank's name under the heading "Term B Commitment" on Annex A or, in the
-------
case of a Bank that becomes a Bank pursuant to an assignment, the amount of the
assignor's Term B Commitment assigned to such Bank, in either case as the same
may be increased or reduced from time to time pursuant to Section 1.14 or
pursuant to assignments in accordance with Section 10.10(a) or (b) as the
context may require, the obligation of such Bank to make Term B Loans in an
aggregate unpaid principal amount not exceeding such amount.
"Term B Loan" means any amount advanced by a Bank pursuant to Section
-----------
1.01(b).
"Term B Note" means any promissory note in the form of Exhibit A-II.
----------- ------------
"Term B Termination Date" means March 31, 2006.
-----------------------
"Termination Event" means, with respect to any Benefit Plan, (a) any
-----------------
Reportable Event with respect to such Benefit Plan, (b) the termination of such
Benefit Plan, or the filing of a notice of intent to terminate such Benefit
Plan, or the treatment of any amendment to such Benefit Plan as a termination
under ERISA Section 4041(e), (c) the institution of proceedings to terminate
such Benefit Plan under ERISA Section 4042(a) or (d) the appointment of a
trustee to administer such Benefit Plan under ERISA Section 4042(b).
"Type" means, with respect to Term A Loans, Term B Loans and RC Loans, any
----
of the following, each of which shall be deemed to be a different "Type" of
Loan: Base Rate Loans, Eurodollar Rate Loans having a one-month Interest Period,
Eurodollar Rate Loans having a two-month Interest Period, Eurodollar Rate Loans
having a three-month Interest Period, Eurodollar Rate Loans having a six-month
Interest Period and, if made available by all of the Banks, Eurodollar Rate
Loans having a nine-month Interest Period and Eurodollar Rate Loans having a
twelve-month Interest Period. Any Eurodollar Rate Loan having an Interest
Period that differs from the duration specified for a Type of Eurodollar Rate
Loan listed above solely as a result of the operation of clauses (a) and (b) of
the definition of "Interest Period" shall be deemed to be a Loan of such above-
listed Type notwithstanding such difference in duration of Interest Periods.
"Unfunded Benefit Liabilities" means, with respect to any Benefit Plan at
----------------------------
any time, the amount of unfunded benefit liabilities of such Benefit Plan at
such time as determined under ERISA Section 4001(a)(18).
84
<PAGE>
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in the State of New York.
"Uniform Customs" means the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No. 500.
"United States Person" means a corporation, partnership or other entity
--------------------
created, organized or incorporated under the laws of the United States of
America or a State thereof (including the District of Columbia).
"Wholly Owned Subsidiary" means, with respect to any Person, any Subsidiary
-----------------------
of such Person (other than, in the case of the Borrower or a Consolidated
Subsidiary, ZDTV) all of the Capital Securities and all other ownership
interests and rights to acquire ownership interests of which (except directors'
qualifying shares) are, directly or indirectly, owned or controlled by such
Person or one or more Wholly Owned Subsidiaries of such Person or by such Person
and one or more of such Subsidiaries; unless otherwise specified, "Wholly Owned
Subsidiary" means a wholly owned subsidiary of the Borrower. For purposes of
Section 3.09 and Section 4.04(b), Capital Securities as used in this definition
shall not include the items referred to in clause (b) of the definition of
Capital Securities.
"ZD Holdings (UK) Ltd." means ZD Holdings (UK) Ltd., a company organized
---------------------
under the laws of England.
"ZDTV" means [ZDTV LLC and/or ZD Television Productions, Inc.]
----
"ZDTV Option" means the Borrower's option to purchase all of the interests
-----------
held by MAC Holdings America, Inc. in ZDTV [pursuant to the License and Services
Agreement.]
Section 11.02 Other Interpretive Provisions.
-----------------------------
(a) Except as otherwise specified herein, all references herein (i)
to any Person shall be deemed to include such Person's successors and assigns,
(ii) to any Applicable Law defined or referred to herein shall be deemed
references to such Applicable Law or any successor Applicable Law as the same
may have been or may be amended or supplemented from time to time and (iii) to
any Loan Document or Contract defined or referred to herein shall be deemed
references to such Loan Document or Contract (and, in the case of any Note or
any other instrument, any instrument issued in substitution therefor) as the
terms thereof may have been or may be amended, supplemented, waived or otherwise
modified from time to time.
(b) When used in this Agreement, the words "herein", "hereof" and
"hereunder" and words of similar import shall refer to this Agreement as a whole
and not to any provision of this Agreement, and the words "Article", "Section",
"Annex", "Schedule" and "Exhibit" shall refer to Articles and Sections of, and
Annexes, Schedules and Exhibits to, this Agreement unless otherwise specified.
(c) Whenever the context so requires, the neuter gender includes the
masculine or feminine, the masculine gender includes the feminine, and the
singular number includes the plural, and vice versa.
85
<PAGE>
(d) Any item or list of items set forth following the word
"including," "include" or "includes" is set forth only for the purpose of
indicating that, regardless of whatever other items are in the category in which
such item or items are "included," such item or items are in such category, and
shall not be construed as indicating that the items in the category in which
such item or items are "included" are limited to such items or to items similar
to such items.
(e) Each authorization in favor of the Administrative Agent, the
Issuing Bank, the Banks or any other Person granted by or pursuant to this
Agreement shall be deemed to be irrevocable and coupled with an interest.
(f) Except as otherwise specified herein, all references herein to the
Administrative Agent, the Issuing Bank, the Swing Line Bank, any Bank or any
Loan Party shall be deemed to refer to such Person however designated in Loan
Documents, so that (i) a reference to rights of a Bank under the Loan Documents
shall be deemed to include the rights of such Person as the guaranteed party
under Article 9 and, if such Person is the Swing Line Bank, the rights of such
Person as the Swing Line Bank and, if such Person is the Issuing Bank, the
rights of such Person as the Issuing Bank and (ii) a reference to costs incurred
by a Bank in connection with Loan Documents shall be deemed to include costs
incurred by such Person as the guaranteed party under Article 9, as the Swing
Line Bank and as the Issuing Bank, as the case may be.
(g) except as otherwise specified herein, all references to the time
of day shall be deemed to be to New York City time as then in effect.
Section 11.03 Accounting Matters.
------------------
Unless otherwise specified herein, all accounting determinations hereunder
and all computations utilized by the Borrower in complying with the covenants
contained herein shall be made, all accounting terms used herein shall be
interpreted, and all financial statements required to be delivered hereunder
shall be prepared, in accordance with Generally Accepted Accounting Principles,
except, in the case of such financial statements, for departures from Generally
Accepted Accounting Principles that may from time to time be approved in writing
by the independent certified public accountants who are at the time, in
accordance with Section 5.01(b), reporting on the Borrower's financial
statements.
Section 11.04 Representations and Warranties.
------------------------------
All Representations and Warranties shall be deemed made (a) in the case of
any Representation and Warranty contained in this Agreement at and as of the
Agreement Date, (b) in the case of any Representation and Warranty contained in
this Agreement or any other document delivered in connection with or pursuant to
this Agreement or at the time any Credit Extension is made, at and as of such
time and (c) in the case of any particular Representation and Warranty, wherever
contained, at such other time or times as such Representation and Warranty is
made or deemed made in accordance with the provisions of this Agreement or the
document pursuant to, under or in connection with which such Representation and
Warranty is made or deemed made.
Section 11.05 Captions.
--------
Captions to Articles, Sections and subsections of, and Annexes, Schedules
and Exhibits to, this Agreement are included for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose or in
any way affect the meaning or construction of any provision of this Agreement.
86
<PAGE>
Section 11.06 Interpretation of Related Documents.
-----------------------------------
Except as otherwise specified therein, terms that are defined herein that
are used in Notes, certificates, opinions and other documents delivered in
connection herewith shall have the meanings ascribed to them herein and such
documents shall be otherwise interpreted in accordance with the provisions of
this Article 11.
87
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers all as of the Agreement Date.
ZIFF-DAVIS INC.
By:
----------------------------------
Name:
Title:
[GUARANTORS],
as a Guarantor
By:
----------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Administrative Agent, Issuing Bank,
Swing Line Bank and a Bank
By:
----------------------------------
Name: Brendan T. Nedzi
Title: Senior Vice President
MORGAN STANLEY SENIOR FUNDING, INC.
By:
----------------------------------
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK
By:
----------------------------------
Name:
Title:
DLJ CAPITAL FUNDING, INC.
By:
----------------------------------
Name:
Title:
[OTHER BANKS]
By:
----------------------------------
Name:
Title:
Agreement Date: _________________
<PAGE>
ANNEX A
-------
BANKS, LENDING OFFICES AND NOTICE ADDRESSES
Banks, Lending Offices
and Notice Addresses Term A Commitment Term B Commitment RC Commitment
- -------------------- ----------------- ----------------- -------------
THE BANK OF NEW YORK $_____________ $_____________ $_____________
Domestic Lending Office:
The Bank of New York
One Wall Street
New York, NY 10286
Eurodollar Lending Office:
The Bank of New York
One Wall Street
New York, NY 10286
Notice Address:
The Bank of New York
One Wall Street
New York, NY 10286
Telecopy No.: (212) 635-8593/8595
Telephone No.: (212) 635-8628
Attention: Mr. Brendan T. Nedzi
<PAGE>
Banks, Lending Offices
and Notice Addresses Term A Commitment Term B Commitment RC Commitment
- -------------------- ----------------- ----------------- -------------
MORGAN STANLEY SENIOR
FUNDING, INC. $_____________ $_____________ $_____________
Domestic Lending Office:
Morgan Stanley Senior Funding, Inc.
1585 Broadway
New York, NY 10036
Eurodollar Lending Office:
Morgan Stanley Senior Funding, Inc.
1585 Broadway
New York, NY 10036
Notice Address:
Morgan Stanley Senior Funding, Inc.
1585 Broadway
New York, NY 10036
Telecopy No.: [(212) 761-3932]
Telephone No.: [(212) 761-4000]
Attention: [Mr. Henry D'Alessandro]
2
<PAGE>
Banks, Lending Offices
and Notice Addresses Term A Commitment Term B Commitment RC Commitment
- -------------------- ----------------- ----------------- -------------
THE CHASE MANHATTAN BANK $_____________ $_____________
$_____________
Domestic Lending Office:
The Chase Manhattan Bank
270 Park Avenue, 5th Floor
New York, NY 10017
Eurodollar Lending Office:
The Chase Manhattan Bank
270 Park Avenue, 5th Floor
New York, NY 10017
Notice Address:
The Chase Manhattan Bank
270 Park Avenue, 5th Floor
New York, NY 10017
Telecopy No.: (212) 270-4164
Telephone No.: (212) 270-1786
Attention: Ms. Joan Fitzgibbon
3
<PAGE>
Banks, Lending Offices
and Notice Addresses Term A Commitment Term B Commitment RC Commitment
- -------------------- ----------------- ----------------- -------------
DLJ CAPITAL FUNDING, INC. $_______________ $_______________ $____________
Domestic Lending Office:
DLJ Capital Funding, Inc.
277 Park Avenue, 17th Floor
New York, NY 10172
Eurodollar Lending Office:
DLJ Capital Funding, Inc.
277 Park Avenue, 17th Floor
New York, NY 10172
Notice Address:
DLJ Capital Funding, Inc.
277 Park Avenue, 17th Floor
New York, NY 10172
Telecopy No.: [(212) 892-7542]
Telephone No.: [(212) 892-3292]
Attention: [Mr. Gene Martin]
4
<PAGE>
Banks, Lending Offices
and Notice Addresses Term A Commitment Term B Commitment RC Commitment
- -------------------- ----------------- ----------------- -------------
[BANK] $_____________ $_____________ $____________
Domestic Lending Office:
[Bank]
Eurodollar Lending Office:
[Bank]
Notice Address:
[Bank]
Telecopy No.:
Telephone No.:
Attention:
5
<PAGE>
Schedule 1.02(a)
NOTICE OF BORROWING
[Name and address
of the Administrative Agent
in accordance with
Section 10.01(b)]
Date:
Ladies and Gentlemen:
Reference is made to the Secured Guaranteed Credit Agreement, dated as of
May [4], 1998 among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ
Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto (the "Credit Agreement").
The undersigned hereby gives notice pursuant to Section 1.02(a) of the Credit
Agreement of its request to have the following RC Loans made to it on [insert
requested date of borrowing]:
Type of RC Loan/1/ Amount
- ---------------- ------
The undersigned on behalf of the Borrower, represents and warrants that (a)
the borrowing requested hereby complies with the requirements of the Credit
Agreement and (b) [except to the extent set forth on Annex A hereto,]2 (i) each
Loan Document Representation and Warranty is true and correct at and as of the
date hereof and (except to the extent the undersigned gives notice to the Bank
to the contrary prior to 5:00 p.m. on the Business Day before the requested date
for the making of the RC Loans) will be true and correct at and as of the time
the RC Loans are made, in each case both with and without giving effect to the
RC Loans and the application of the proceeds thereof, and (ii) no Default has
occurred and is continuing as of the date hereof or would result from the making
of the RC Loans or from the application of the
<PAGE>
proceeds thereof if the RC Loans were made on the date hereof, and (except to
the extent the undersigned gives notice to the Bank to the contrary prior to
5:00 p.m. on the Business Day before the requested date for the making of the RC
Loans) no Default will have occurred and be continuing at the time the RC Loans
are to be made or would result from the making of the RC Loans or from the
application of the proceeds thereof.
ZIFF-DAVIS INC.
By:
--------------------------------
Name:
Title:
- ----------
1 Be sure to specify the duration of the Interest Period in the case of
Eurodollar Rate Loans (e.g., one-month Eurodollar Rate).
----
2 If the representation and warranty in either clause (b)(i) or (b)(ii) would
be incorrect, include the material in brackets and set forth the reasons such
representation and warranty would be incorrect on an attachment labeled Annex
A.
2
<PAGE>
Schedule 1.03(c)
NOTICE OF CONVERSION OR CONTINUATION
[Name and address
of the Administrative Agent in accordance with
Section 10.01(b)]
Date:
Ladies and Gentlemen:
Reference is made to the Secured Guaranteed Credit Agreement, dated as of
May [4], 1998 among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ
Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto (the "Credit Agreement").
The undersigned hereby gives notice pursuant to Section 1.03(c) of the Credit
Agreement of its desire to convert or continue the Loans specified below into or
as Loans of the Types and in the amounts specified below on [insert date of
conversion or continuation]:
<TABLE>
<CAPTION>
Loans to be Converted or Continued Converted or Continued Loans
- ----------------------------------------------------------- ------------------------------------------
Last Day of Current Type of
Type of Loan/1/ Interest Period Amount Loan /1/ Amount
- -------------------- ---------------------- ------------- -------------------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
The undersigned represents and warrants that conversions and continuations
requested hereby comply with the requirements of the Credit Agreement.
ZIFF-DAVIS INC.
By:
---------------------------------
Name:
Title:
1 Be sure to specify the duration of the Interest Period in the case of
Eurodollar Rate Loans (e.g., one-month Eurodollar Rate).
----
<PAGE>
Schedule 1.05
NOTICE OF PREPAYMENT
[Name and address
of the Administrative Agent in accordance with
Section 10.01(b)]
[Name and address of the Swing Line Bank in
accordance with Section 10.01(b)]/1/
Date:
Ladies and Gentlemen:
Reference is made to the Secured Guaranteed Credit Agreement, dated as of
May [4], 1998 among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ
Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto (the "Credit Agreement").
The undersigned hereby gives notice pursuant to Section 1.05 of the Credit
Agreement that it will prepay the [Term [A][B]] [RC] [Swing]/2/ Loans specified
below on [insert date of prepayment]:
<TABLE>
<CAPTION>
Last Day of
Type of [Term[A][B]] [RC] [Current] [Agreed Rate]
[Swing] Loan Interest Period/3/ Amount
------------ ----------------- ------
<S> <C> <C>
</TABLE>
The undersigned represents and warrants that the prepayment requested
hereby complies with the requirements of the Credit Agreement.
ZIFF-DAVIS INC.
By:________________________
Name:
Title:
1 Include if Swing Loans are to be prepaid and the Swing Line Bank is not the
Administrative Agent.
2 Specify whether RC, Swing or Term A or B Loans. Be sure to specify duration
of the Interest Period or the Agreed Rate Interest Period, as applicable, in
the case of Eurodollar Rate Loans and Agreed Rate Loans (e.g., one-month
----
Eurodollar Rate, two-day Agreed Rate, as applicable).
/3/ Insert as applicable.
<PAGE>
Schedule 1.20 (c)
-----------------
NON-US BANK CERTIFICATE
[Name and address
of Borrower in accordance with
Section 10.01(b)]
[Name and address
of Administrative Agent in accordance with
Section 10.01(b)]
Gentlemen:
Reference is made to the Secured Guaranteed Credit Agreement dated as of
May [4], 1998 among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ
Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto (the "Credit Agreement").
Terms used herein that are defined in the Credit Agreement are used with the
meanings therein ascribed to them.
The undersigned hereby (a) certifies to the Borrower and the Administrative
Agent that (i) it is a Non-US Bank and (ii) it is entitled to submit an Internal
Revenue Service Form W-8 and (b) agrees to indemnify and defend the Borrower and
the Administrative Agent from, and hold each of them harmless against, any and
all losses, liabilities, claims, damages and expenses of any kind arising out
of, resulting from, or in any way connected with the certification made pursuant
to clause (a) being incorrect.
Very truly yours,
[Bank]
By:
------------------------
Name:
Title:
<PAGE>
Schedule 2.01(a)(i)
-------------------
[NAME OF LOAN PARTY]
CERTIFICATE AS TO RESOLUTIONS, ETC.
I, __________, [Assistant] Secretary of [name of Loan Party], a
__________ [corporation/partnership] (the "Company"), hereby certify, pursuant
to Section 2.01(a)(i) of the Guaranteed Credit Agreement dated as of May [4],
1998 among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley Senior
Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ Capital
Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto, that:
1. The below named persons have been duly elected (or appointed) and
have duly qualified as, and on this day are, officers of the Company
holding their respective offices below set opposite their names, and the
signatures below set opposite their names are their genuine signatures:
Name Office Signature
---- ------ ---------
[Insert names and offices of persons authorized to sign the Loan Documents
to which the Company is a party and any related documents]
2. (a) Attached as Annex A is a true and correct copy of
[resolutions/consents] duly adopted by [written consents of] the [Board of
Directors/partners] of the Company. Such [resolutions/consents] have not
been amended, modified or revoked and are in full force and effect on the
date hereof.
[(b) Attached as Annex A-1 is a true and correct copy of
resolutions duly adopted by [unanimous written consent of] the stockholders
of the Company. Such resolutions have not been amended, modified or
revoked and are in full force and effect on the date hereof. ]/1/
[(b) Attached as Annex A-2 is a true and correct copy of the
minutes and by-laws or the Articles of Incorporation of the Company. Such
minutes and by-laws or
- ----------
1 Omit if not applicable.
<PAGE>
Articles of Incorporation have not been amended, modified or revoked and are in
full force and effect on the date hereof.]/2/
3. [List Loan Documents to which the Company is a party], in each
case as executed and delivered on behalf of the Company, are in the forms
thereof approved by [unanimous written consent of] the [Board of
Directors/partners] of the Company.
[4. There has been no amendment to [the Certificate of Incorporation]
[partnership agreement] of the Company since __________, 19__./3/]/1/
[5. Attached as Annex B is a true and correct copy of the By-laws of
the Company as in effect on __________, 19__4 and at all subsequent times
to and including the date hereof.]/1/
IN WITNESS WHEREOF, I have signed this certificate this __ day of
__________, 19__.
___________________________
[Assistant] Secretary
I, __________, [title] of the Company, hereby certify that [name of
the above [Assistant] Secretary] has been duly elected or appointed and has been
duly qualified as, and on this day is, [Assistant] Secretary of the Company, and
the signature in paragraph 1 above is his genuine signature.
IN WITNESS WHEREOF, I have signed this certificate this __ day of
__________, 19__.
___________________________
[Title]
- ----------
1 Omit if not applicable.
2 Use this alternate clause (b) for Subordiantors MAC Inc. and SOFTBANK Corp.
and other Loan Parties as appropriate.
3 Insert date of the Secretary of State's Certificate of Incorporation required
by Section 2.01(a)(ii).
4 Insert date of the Board of Directors' meeting adopting the resolutions
referred to in paragraph 2(a).
2
<PAGE>
Annex A
-------
[NAME OF LOAN PARTY]
RESOLUTIONS OF BOARD OF DIRECTORS
<PAGE>
Annex A-1
---------
[NAME OF LOAN PARTY]
RESOLUTIONS OF SHAREHOLDERS
[Insert applicable resolutions]
<PAGE>
Annex A-2
---------
[NAME OF LOAN PARTY]
[MINUTES AND BY-LAWS/ARTICLES OF INCORPORATION]
<PAGE>
Schedule 3.02
-------------
SCHEDULE OF SUBSIDIARIES
<PAGE>
Schedule 3.03
-------------
SCHEDULE OF REQUIRED CONSENTS,
GOVERNMENTAL APPROVALS
AND GOVERNMENTAL REGISTRATIONS
<PAGE>
Schedule 3.06
-------------
SCHEDULE OF MATERIAL LITIGATION
<PAGE>
Schedule 4.05
-------------
SCHEDULE OF INDEBTEDNESS
<PAGE>
Schedule 4.06
-------------
SCHEDULE OF EXISTING GUARANTIES
<PAGE>
Schedule 4.07
-------------
SCHEDULE OF EXISTING LIENS
Obligation Secured Collateral
------------------ ----------
<PAGE>
Schedule 4.11
-------------
SCHEDULE OF EXISTING INVESTMENTS
<PAGE>
Schedule 4.12
-------------
SCHEDULE OF EXISTING BENEFIT PLANS
<PAGE>
Schedule 5.01(b)
----------------
ZIFF-DAVIS INC.
CERTIFICATE AS TO FINANCIAL STATEMENTS AND DEFAULTS
I, __________, [President, Chief Financial Officer] of Ziff-Davis
Inc., a Delaware corporation (the "Borrower"), hereby certify, pursuant to
Section 5.01 of the Secured Guaranteed Credit Agreement dated as of May [4],
1998 among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley Senior
Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ Capital
Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto, that:
1. (a) The accompanying [unaudited]1 consolidated and consolidating
financial statements of the Borrower and the Consolidated Subsidiaries as at
__________ and for the [fiscal year][quarterly accounting period]2 ending
__________, are complete and correct and present fairly, in accordance with
Generally Accepted Accounting Principles (except for changes therein or
departures therefrom described below that have been approved in writing by
Messrs. __________, the Borrower's current independent certified public
accountants), the consolidated and consolidating financial position of the
Borrower and the Consolidated Subsidiaries as at the end of such [fiscal
year][quarterly period]2, and the consolidated and consolidating results of
operations and cash flows for such quarterly period, and for the elapsed portion
of the fiscal year ended with the last day of [fiscal year][such quarterly
period]2, in each case on the basis presented [and subject only to normal year-
end auditing adjustments]1.
(b) Except as disclosed or reflected in such financial statements, as
at __________, neither the Borrower nor any Subsidiary had any Liability,
contingent or otherwise, or any unrealized or anticipated loss, that, singly or
in the aggregate, have had or might have a Materially Adverse Effect on the
Borrower and the Consolidated Subsidiaries taken as a whole.
2. (a) The changes in and departures from Generally Accepted
Accounting Principles are as follows:
<PAGE>
All such changes have been approved in writing by Messrs. __________.
3. There follow the calculations required to establish whether or not
the Borrower was in compliance with the following Sections of the Agreement:4
(a)
(b)
(c)
(d)
(e)
4. Based on an examination sufficient to enable me to make an
informed statement, no Default exists, including, in particular, any such
arising under the provisions of Article 4, except the following:
[If none such exist, insert "None"; if any do exist, specify the
same by Section, give the date the same occurred, and the steps being taken
by the Borrower or a Subsidiary with respect thereto.]
Dated:
[President, Chief Financial Officer]
_______________
1 Include only in the case of a certificate to be delivered with respect to
quarterly financial statements.
2 Include first alternative in the case of a certificate to be delivered with
respect to year-end financial statements; include second alternative in the
case of a certificate to be delivered with respect to quarterly financial
statements.
3 Paragraph (b) should be included in, and Annex A attached to, the Certificate
only if changes from Generally Accepted Accounting Principles are specified
in Paragraph 2(a) of this or any previous Certificate.
4 The calculations should be made in the same manner and with the same degree
of detail as the calculations set forth in the certificate delivered by the
Borrower pursuant to Section [2.01(a)(vi)].
2
<PAGE>
Schedule 5.02(a)
----------------
SCHEDULE OF HISTORICAL FINANCIAL STATEMENTS
<PAGE>
Schedule 9.01
-------------
SCHEDULE OF GUARANTORS
<PAGE>
Schedule 10.10(a)
-----------------
NOTICE OF ASSIGNMENT
[Name and address
of Borrower in accordance with
Section 10.01(b)]
[Name and address
of Administrative Agent in accordance with
Section 10.01(b)]
[Name and address
of Issuing Bank in, accordance with
Section 10.01(b)]/1/
[Name and address of Swing Line Bank in
accordance with Section 10.01(b)]/1/
Date:
Gentlemen:
Reference is made to the Secured Guaranteed Credit Agreement, dated as
of May [4], 1998 among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ
Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto (the "Credit Agreement").
The undersigned hereby gives notice that [name of Assignor] [(the "Assignor")] 2
has made the following assignment to [name of Assignee] [(the "Assignee")]:3
Rights and Obligations
Assigned:
- ----------
1 Include if not the Administrative Agent.
2 Include definition if Footnote 4 material is to be included.
3 Include definition if Footnote 3 or Footnote 4 material is to be included.
<PAGE>
Effective Date of
Assignment:
[The Assignee's Lending Offices and address for notices are as
follows:
Domestic Lending Office:
Eurodollar Lending Office:
Notice Address:]/4/
[The Assignor hereby requests that [the Borrower and] [the
Administrative Agent] [the Issuing Bank] [the Swing Line Bank] consent to the
assignment described above by signing a copy of this letter in the space
provided below and returning it to the Assignor. Such consent shall release the
Assignor from all of the obligations described above as having been assigned to
the Assignee.]5
[NAME OF ASSIGNOR]
By:
---------------------
Name:
Title:
[NAME OF ASSIGNEE]
By:
---------------------
Name:
Title:
[Assignment and release consented to:]5
ZIFF-DAVIS INC.
By:
---------------------
Name:
Title:
- --------------------
4 Omit if the Assignee is a Bank.
5 Include the appropriate portion of the bracketed provision if (i) the
Assignor desires to be released from the assigned obligations, (ii) the
consent of the Borrower and/or the Agent is required for such release and
(iii) the Assignor has not otherwise obtained such consents.
2
<PAGE>
THE BANK OF NEW YORK,
as Administrative Agent
By:
---------------------
Name:
Title:
[SWING LINE BANK]
- ---------------------
Name:
Title:
[ISSUING BANK]
- ---------------------
Name:
Title:
3
<PAGE>
EXHIBIT A-I
-----------
ZIFF-DAVIS INC.
TERM A NOTE
___________, 1998
FOR VALUE RECEIVED, ZIFF-DAVIS INC. (the "Borrower") hereby promises
to pay to the order of _______________________ (the "Bank") the principal amount
of the Term A Loans made by the Bank, on the dates and in the amounts specified
in Section 1.04 of the Credit Agreement referred to below, and to pay interest
on the principal amount of each Term A Loan on the dates and at the rates
specified in Section 1.03 of such Credit Agreement. All payments due the Bank
hereunder shall be made to the Bank at the place, in the type of money and funds
and in the manner specified in Section 1.18 of such Credit Agreement.
Each holder hereof is authorized to endorse on the grid attached
hereto, or on a continuation thereof, each Term A Loan and each payment with
respect thereto, provided that the failure of the Bank to make any such
endorsement shall not affect the obligations of the Borrower hereunder or under
such Credit Agreement.
Presentment, demand, protest, notice of dishonor and notice of intent
to accelerate are hereby waived by the undersigned.
This Note evidences Term A Loans made by the Bank under, and is
entitled to the benefits of, the Secured Guaranteed Credit Agreement, dated as
of May [4], 1998, among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ
Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto, as the same may be
amended from time to time (the "Credit Agreement"). Reference is made to such
Credit Agreement, as so amended, for provisions relating to the prepayment and
the acceleration of the maturity hereof.
This Note shall, pursuant to New York General Obligations Law Section
5-1401, be governed by the law of the State of New York.
[This is a Registered Note, and it and the Loans evidenced hereby may
be assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer on the Register and compliance with the other
requirements provided for in the Credit Agreement.]
<PAGE>
ZIFF-DAVIS INC.
By:
---------------------
Name:
Title:
2
<PAGE>
GRID
PROMISSORY NOTE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Amount of Notation
Date Loan Principal Repaid Made By
- ---- ---- ---------------- -------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-II
------------
ZIFF-DAVIS INC.
TERM B NOTE
___________, 1998
FOR VALUE RECEIVED, ZIFF-DAVIS INC. (the "Borrower") hereby promises
to pay to the order of _______________________ (the "Bank") the principal amount
of the Term B Loans made by the Bank, on the dates and in the amounts specified
in Section 1.04 of the Credit Agreement referred to below, and to pay interest
on the principal amount of each Term B Loan on the dates and at the rates
specified in Section 1.03 of such Credit Agreement. All payments due the Bank
hereunder shall be made to the Bank at the place, in the type of money and funds
and in the manner specified in Section 1.18 of such Credit Agreement.
Each holder hereof is authorized to endorse on the grid attached
hereto, or on a continuation thereof, each Term B Loan and each payment with
respect thereto, provided that the failure of the Bank to make any such
endorsement shall not affect the obligations of the Borrower hereunder or under
such Credit Agreement.
Presentment, demand, protest, notice of dishonor and notice of intent
to accelerate are hereby waived by the undersigned.
This Note evidences Term B Loans made by the Bank under, and is
entitled to the benefits of, the Secured Guaranteed Credit Agreement, dated as
of May [4], 1998, among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ
Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto, as the same may be
amended from time to time (the "Credit Agreement"). Reference is made to such
Credit Agreement, as so amended, for provisions relating to the prepayment and
the acceleration of the maturity hereof.
This Note shall, pursuant to New York General Obligations Law Section
5-1401, be governed by the law of the State of New York.
[This is a Registered Note, and it and the Loans evidenced hereby may
be assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer on the Register and compliance with the other
requirements provided for in the Credit Agreement.]
<PAGE>
ZIFF-DAVIS INC.
By:
-----------------
Name:
Title:
2
<PAGE>
GRID
PROMISSORY NOTE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Amount of Notation
Date Loan Principal Repaid Made By
- ---- ---- ---------------- -------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-III
-------------
ZIFF-DAVIS INC.
RC NOTE
_______, 1998
FOR VALUE RECEIVED, ZIFF-DAVIS INC. (the "Borrower") hereby promises
to pay to the order of _______________________ (the "Bank") the principal amount
of the RC Loans made by the Bank, on the dates and in the amounts specified in
Section 1.04 of the Credit Agreement referred to below, and to pay interest on
the principal amount of each RC Loan on the dates and at the rates specified in
Section 1.03 of such Credit Agreement. All payments due the Bank hereunder
shall be made to the Bank at the place, in the type of money and funds and in
the manner specified in Section 1.18 of such Credit Agreement.
Each holder hereof is authorized to endorse on the grid attached
hereto, or on a continuation thereof, each RC Loan and each payment with respect
thereto, provided that the failure of the Bank to make any such endorsement
shall not affect the obligations of the Borrower hereunder or under such Credit
Agreement.
Presentment, demand, protest, notice of dishonor and notice of intent
to accelerate are hereby waived by the undersigned.
This Note evidences RC Loans made by the Bank under, and is entitled
to the benefits of, the Secured Guaranteed Credit Agreement, dated as of May
[4], 1998, among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley Senior
Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ Capital
Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto, as the same may be
amended from time to time (the "Credit Agreement"). Reference is made to such
Credit Agreement, as so amended, for provisions relating to the prepayment and
the acceleration of the maturity hereof.
This Note shall, pursuant to New York General Obligations Law Section
5-1401, be governed by the law of the State of New York.
[This is a Registered Note, and it and the Loans evidenced hereby may
be assigned or otherwise transferred in whole or in part only by registration of
such assignment
<PAGE>
or transfer on the Register and compliance with the other requirements
provided for in the Credit Agreement.]
ZIFF-DAVIS INC.
By:
--------------------
Name:
Title:
2
<PAGE>
GRID
PROMISSORY NOTE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Amount of Notation
Date Loan Principal Repaid Made By
- ---- ---- ---------------- -------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-IV
------------
ZIFF-DAVIS INC.
SWING LOAN NOTE
_______, 1998
FOR VALUE RECEIVED, ZIFF-DAVIS INC. (the "Borrower") hereby promises
to pay to the order of _______________________ (the "Swing Line Bank") the
principal amount of the Swing Loans made by the Swing Line Bank, on the dates
and in the amounts specified in Section 1.04 of the Credit Agreement referred to
below, and to pay interest on the principal amount of each Swing Loan on the
dates and at the rates specified in Section 1.03 of such Credit Agreement. All
payments due the Swing Line Bank hereunder shall be made to the Swing Line Bank
at the place, in the type of money and funds and in the manner specified in
Section 1.18 of such Credit Agreement.
Each holder hereof is authorized to endorse on the grid attached
hereto, or on a continuation thereof, each Swing Loan and each payment with
respect thereto, provided that the failure of the Bank to make any such
endorsement shall not affect the obligations of the Borrower hereunder or under
such Credit Agreement.
Presentment, demand, protest, notice of dishonor and notice of intent
to accelerate are hereby waived by the undersigned.
This Note evidences Swing Loans made by the Swing Line Bank under, and
is entitled to the benefits of, the Secured Guaranteed Credit Agreement, dated
as of May [4], 1998, among Ziff-Davis Inc., the Banks party thereto, Morgan
Stanley Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and
DLJ Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto, as the same may be
amended from time to time (the "Credit Agreement"). Reference is made to such
Credit Agreement, as so amended, for provisions relating to the prepayment and
the acceleration of the maturity hereof.
This Note shall, pursuant to New York General Obligations Law Section
5-1401, be governed by the law of the State of New York.
ZIFF-DAVIS INC.
By:
---------------------
Name:
Title:
<PAGE>
GRID
PROMISSORY NOTE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Amount of Notation
Date Loan Principal Repaid Made By
- ---- ---- ---------------- -------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
---------
[FORM OF SUBORDINATION AGREEMENT]
<PAGE>
EXHIBIT C
---------
COMMITMENT INCREASE SUPPLEMENT
THIS COMMITMENT INCREASE SUPPLEMENT is made and dated as of
_________________ ____, by and among [ADDITIONAL COMMITMENT BANK] (the
"Additional Commitment Bank"), Ziff Davis Inc., a Delaware corporation (the
"Borrower"), and The Bank of New York, as Administrative Agent under the Secured
Guaranteed Credit Agreement, dated as of May [4], 1998, among Ziff-Davis Inc.,
the Banks party thereto, Morgan Stanley Senior Funding, Inc., as Syndication
Agent, The Chase Manhattan Bank and DLJ Capital Funding, Inc., as Co-
Documentation Agents, The Bank of New York, as Administrative Agent, and the
Guarantors party thereto (the "Credit Agreement"). Terms used and not otherwise
defined herein are used herein with the meanings therein ascribed thereto in the
Credit Agreement.
WHEREAS, the Borrower desires to have the aggregate amount of the
Commitments increased; and
WHEREAS, the Additional Commitment Bank is willing to [become an additional
Bank][increase its Commitment]1;
NOW, THEREFORE, the parties hereto agree as follows:
1. Upon the effectiveness of this Commitment Increase Supplement, [the
Additional Commitment Lender shall be a party to the Credit Agreement and shall
be entitled to all of the rights, and be subject to all of the obligations, of a
Bank under the Credit Agreement][the RC Commitment of the Additional Commitment
Bank shall be increased from $_____________ to $__________________.]1
[2. The initial amount of the Additional Commitment Bank's RC Commitment shall
be $________________.]2
3. The Additional Commitment Bank acknowledges, and agrees to comply with,
its obligation under Section 1.14(c) of the Credit Agreement to purchase
assignments of [Loans] from the other Banks on the effective date hereof.
4. This Commitment Increase Supplement shall become effective upon the
execution and delivery hereof by the Additional Commitment Bank, the Borrower
and the Administrative Agent, which Commitment Increase Supplement is subject to
the consent of the Administrative Agent.
____________________________
1 Use second alternative if the Additional Commitment Bank is an existing Bank;
otherwise use the first alternative.
2 Omit if the Additional Commitment Bank is an existing Bank.
<PAGE>
5. This Commitment Increase Supplement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
6. The rights and duties of the parties to this Commitment Increase
Supplement shall, pursuant to New York General Obligations Law Section 5-1401,
be governed by the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have cause this Commitment Increase
Supplement to be executed as of the day and year first written above.
[ADDITIONAL COMMITMENT LENDER]
By:
----------------------------
Name:
Title:
ZIFF-DAVIS INC.
By:
----------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Administrative Agent
By:
----------------------------
Name:
Title:
2
<PAGE>
EXHIBIT D
---------
[TERMS OF COMMITMENT INCREASE ASSIGNMENTS/1/
Each assignment of Loans by any Bank (an "Assignor") to an Additional
Commitment Bank (an "Assignee") pursuant to Section 1.14(c) (an "Assignment")
shall be made on the terms set forth in this Exhibit.
1. The purchase price for the Assignment shall be equal to the aggregate
principal amount of the Loans assigned plus the amount of accrued and unpaid
interest thereon on the date of the assignment. The purchase price shall be
payable, not later than 12:00 noon New York City time on the effective date of
the applicable Commitment Increase, in Dollars in funds immediately available
to the Assignor at such office of the Assignor (or a commercial bank designated
by it) located in the United States as the Assignor shall specify to the
Assignee.
2. The Assignment shall consist of an equal percentage of all Loans of the
Assignor outstanding and shall include all of the Assignor's rights under the
Credit Agreement and the other Loan Documents in respect of the portion of the
Loans of the Assignor assigned, including accrued interest thereon.
3. The Assignment shall be without recourse to the Assignor. The Assignor
shall not be deemed to have made any representation or warranty or to have
assumed any responsibility with respect to (a) any statements, warranties or
representations made in or in connection with the Credit Agreement, any other
Loan Document or any other instrument or document furnished pursuant thereto or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement, any other Loan Document or any other instrument
or document furnished pursuant thereto, other than as set forth in paragraph 4
below, or (b) the financial condition of the Borrower or any of its
Subsidiaries, or the performance or observance by the Borrower or any of its
Subsidiaries of any of their respective obligations under the Credit Agreement,
any other Loan Document or any other instrument or document furnished pursuant
thereto.
4. The Assignor shall, at the time of the Assignment, be deemed to have
represented and warranted that (a) it has full power, authority and legal right
to make the Assignment and (b) it is the legal and beneficial owner of the
rights assigned and such rights are free and clear of any lien or adverse claim,
including any participation.
5. The Assignee shall, at the time of the Assignment, be deemed to have (a)
represented and warranted that it has full power, authority and legal right to
purchase and assume the Assignment; (b) confirmed that it has received a copy of
the Credit Agreement and all other
- ----------
/1/ Conform to terms of 1.14(c) when agreed.
3
<PAGE>
Loan Documents, together with copies of the most recent financial statements
delivered pursuant to Section 5.01 of the Credit Agreement and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to purchase and assume the Assignment; and (c) agreed that
it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement and
the other Loan Documents.]
4
<PAGE>
EXHIBIT E
---------
[FORM OF PLEDGE AGREEMENT]
<PAGE>
EXHIBIT F
---------
GUARANTOR SUPPLEMENT
Reference is made to the Secured Guaranteed Credit Agreement dated as
of May [4], 1998, among Ziff-Davis Inc., the Banks party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent, The Chase Manhattan Bank and DLJ
Capital Funding, Inc., as Co-Documentation Agents, The Bank of New York, as
Administrative Agent, and the Guarantors party thereto (the "Credit Agreement");
capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in, or by reference in, the Credit Agreement. The
undersigned hereby agrees that upon delivery hereof to the Bank the undersigned
shall be and become a Guarantor for all purposes of the Credit Agreement as
fully and to the same extent as if it were an original signatory thereto.
[Name of Guarantor]
By:
------------------------
Name:
Title:
Dated:
Notice Address:
Attention:
Telephone:
Telecopy:
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 27, 1998,
relating to the balance sheet of ZD Inc. and our reports dated February 17,
1998, relating to the combined financial statements of Ziff-Davis Inc. and ZD
COMDEX and Forums Inc., and the consolidated financial statements of Ziff-
Davis Inc. (formerly Ziff-Davis Publishing Company), which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
New York, NY
April 27, 1998
